SAIL - Bottomed Out Valuation; To Benefit From A Prolonged Steel Up-Cycle: Axis Securities Initiates Coverage
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Axis Securities Report
While we expect steel margins to come under pressure in H2 FY22, they are likely to recover post H2 FY22 and remain above cycle average. Our optimism is based on the expectation of weak demand in China getting offset by lower production forecasts and China continuing to disincentivise steel exports.
The high steel price cycle sustaining in CY22 will help Steel Authority of India Ltd. deleverage further and drive profitability. The stock is currently trading at 3.0 times consensus one-year forward enterprise valueV/Ebitda and is much below its 10Y/5Y/3Y average of 8.3 times/6.4 times/3.7 times.
SAIL valuation, in our view, looks attractive (26% and 94% discount to Tata Steel Ltd. and JSW Steel Ltd.) and presents an attractive entry point for investors to benefit from a prolonged steel upcycle.
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