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Axis Securities Upgrades SAIL to ‘Buy’ as Steel Market Conditions Improve
Axis Securities has upgraded Steel Authority of India Limited (SAIL) to a ‘buy’ rating from ‘hold’, citing favorable risk-reward dynamics as steel spreads improve and setting a target price of Rs 130, which denotes a potential 19% upside from its current stock price.
In a significant move for investors, Axis Securities has revised its stance on Steel Authority of India Limited (SAIL), upgrading its rating from ‘hold’ to ‘buy’ amidst improving conditions in the steel market. The brokerage firm has identified a lucrative opportunity for SAIL as steel spreads show signs of bottoming out, presenting a compelling investment case for stakeholders.
Key Insights Behind the Upgrade
– **Stock Rating Change**: Axis Securities has increased SAIL’s rating to ‘buy’ and set a target price at Rs 130 per share, up from Rs 115.
– **Market Dynamics**: SAIL is currently trading at 0.72x 12-month forward price-to-book (P/B) ratio, higher than its long-term average of 0.6x.
– **Upside Potential**: The target price implies a 19% upside from Tuesday’s closing price, presenting a strong risk-reward scenario for investors.
Financial Sensitivities and Price Expectations
– **Price Sensitivity**: The report notes SAIL’s higher sensitivity to fluctuations in steel and coking coal prices:
– An increase of Rs 1,000 per tonne in Hot Rolled Coils (HRC) could elevate SAIL’s EBITDA by 15%.
– A decline of $10 per tonne in coking coal prices can raise EBITDA by 10%.
– **Price Assumptions Adjusted**: Axis Securities anticipates a 4% reduction in FY27 coking coal prices and a slight increase in HRC prices for FY26/27, which will enhance EBITDA projections by 4% and 13%, respectively.
Moreover, SAIL is planning significant expansions to increase its production capacity from 20 million tonnes (MT) to 35 MT, with an estimated capital expenditure of Rs 1.1-1.2 lakh crore. The first phase will add 7.5 MT by FY31, with approvals for projects in key locations.
Concerns Regarding Expansion and Debt
– **Expansion Challenges**: While ambitious plans signal growth, historical concerns about high debt levels and project delays persist. Past expansions have faced significant overruns and scheduling issues.
– **Debt Management**: SAIL’s borrowings have decreased to Rs 32,600 crore, with goals to further reduce it to Rs 30,500 crore. However, upcoming expansions pose risks of increased leverage and potential execution delays.
Despite these challenges, analysts from Axis Securities view the current dip in valuation multiples as beneficial, making SAIL a more attractive investment choice in an evolving steel market.
Conclusion
In conclusion, Axis Securities’ upgrade of SAIL reflects a cautiously optimistic outlook for the company amid improving steel spreads and strategic expansion plans. While investors are advised to consider the associated risks of heightened debt and potential delays, the favorable pricing dynamics provide a compelling rationale for the ‘buy’ rating.
Keywords: Axis Securities, SAIL, Steel Authority of India, Stock Rating Upgrade, Steel Market Conditions, Investment Opportunities, EBITDA, Coking Coal Prices, Expansion Plans, Financial Health
Hashtags: #SAIL #SteelAuthority #AxisSecurities #StockMarket #InvestmentAdvice #SteelIndustry
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