Steel Authority of India LTD
(BSE CODE:500113)
| CMP | 6 Months Target | Recommendation |
| Rs 258 | Rs 300 | BUY |
| • | Government-controlled Steel Authority of India Ltd (SAIL) is world's 11th largest steel company, producing around half of India's total crude steel output at its 4 integrated steel plants at Bhilai, Durgapur, Rourkela and Bokaro set up in the 50s and 60s. It also has a stainless steel plant at Salem and an alloy steel plant at Durgapur. |
| • | The company operates captive mines for iron ore and fluxes, and has subsidiaries in associated industries, viz Indian Iron & Steel Co Ltd, Maharashtra Elektrosmelt Ltd and Visvesvaraya Iron & Steel Ltd. It has a wide product range, and is among the world's cheapest steel makers due to complete backward integration, abundant raw material and cheap labor |
| • | SAIL is firming up plans to move into steel-making for auto body, oil and gas transmission pipes and white goods sector. Substantial investments have been planned for infrastructure development in the country especially in construction of highways, bridges, airports, seaports, oil & gas pipelines, drinking water supply pipelines etc. The size range and quality make SAIL's long products a preferred choice for project customers. In case of flat products, SAIL remains a major supplier of HR Coils to the tube making segment and is increasing its presence in cold reducing segment. The Plates from SAIL are rated amongst the best and are in good demand particularly from project customers. |
| • | In view of the rising steel demand in the coming years the company is aggressively expanding its production capacities and improving the sales mix with growing share of value added products. Their effort would be to launch sustenance schemes, quality improvement, cost competitiveness and move up the value chain. |
| | SAIL and Rashtriya Ispat Nigam Ltd (RINL) have been visiting Australia shortly to negotiate acquisition of coking coal assets. Both the public sector steel companies heavily depend on coal imports for meeting their requirements and earlier this year the Minister had led a delegation to Australia to explore opportunities of acquiring coal assets. |
| • | Company is looking at completing the expansion programmes at all its five steel plants by 2010. The company had earlier planned to complete them by 2011-12. To contribute to the growth of the domestic steel sector and maintain the leadership position in the domestic steel market, the company has prepared a roadmap for enhancing its annual hot metal production to over 26 million tonnes (mt) through modernisation and expansion programmes being undertaken in all the five integrated steel plants. |
| • | We expect that the implementation of the modernization and expansion schemes would help eliminating technological obsolescence, enriching product-mix with the share of finished steel increasing to almost 100 per cent and introduction of customer-centric processes, apart from upgrading infrastructural facilities in the plants to support higher volumes |
| | Steel major SAIL has kick started its project of setting up a special economic zone dedicated to the steel sector. The SEZ is to be developed in an area of about 250 acres adjacent to the Salem Steel Plant (SSP). SAIL will play the role of a lead anchor by providing customised steel products to prospective units in the SEZ, which could be set up to manufacture architectural facades, dairy plants, chemical and pharmaceutical plants, machines for the food processing industry, tubes and pipes, auto component and panels for lifts. SAIL expects that the SEZ will create an assured demand for SSP's stainless steel production. As the developer of SEZ, SAIL will also receive benefits like land lease rentals, tax concessions and earnings from provision of services to the SEZ. |
| | We believe that the increased thrust on infrastructure development and rural construction coupled with steady performance of user industries like consumer durables, construction and infrastructure will augur well. However, the automobile sector is witnessing deceleration in domestic demand. Going forward, steel prices are expected to remain firm on healthy demand scenario, while the consolidation process is expected to further gain momentum. |
| | Companies objective is to retain a 30% market share in 2020. As per estimates, the total production volume is slated to reach 200 mt by that time. |
| | Investors may consider fresh exposures in SAIL at the current market price. An encouraging outlook for steel prices, volume growth from ramp-up of its production capacity, improved financial profile and an undemanding valuation offer scope for capital appreciation over the medium term. Hence, we recommend investors to BUY the stock. |
