SAIL - The Best Play On Higher Steel Prices: Motilal Oswal
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Motilal Oswal Report
We see Steel Authority of India Ltd. as the best play on higher steel prices as it -
- is backward integrated with captive iron ore,
- has higher operating leverage due to high conversion cost, and
- has higher financial leverage.
With limited capex, higher pricing should drive significant deleveraging and boost equity value.
We estimate net debt to decline by Rs 232 billion (Rs 56 per share, 76% of the current market price) over FY20-23E to Rs 305 billion.
We also expect higher dividend payouts going forward (implying approximately 5% yield), supported by a strong free cash flow of Rs 19 per share (25% yield).
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