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June 27, 2014
Nirmal bang on Steel Authority of India-
Steel Authority of India- Institution Desk Management Meet Update- Likely Improvement Priced-in; Retain Sell: We had a meeting with the management of SAIL recently in order to get an update on its current activities. The company will enjoy the benefit of lower coking coal prices, which will be slightly offset by a minor drop in steel prices. SAIL is hopeful of improvement in demand driven by investment revival, which will help it to sell incremental volume arising out of expansion. The management indicated that there were certain non-recurring expenses in FY14, which led EBITDA to fall to a 10-year low of Rs3,457/tn. The management expects the performance to improve on the back of higher volume and lower coking coal as well as overheads costs. We have not revised our estimates at this point of time, as we have already factored in adequate improvement from FY14 onwards. SAIL currently trades at 12.1x/10.8x FY15E/ FY16E EV/EBITDA, respectively, higher than its past 12 years’ average of 6.3x. We have retained Sell rating with a TP of Rs72, which is 22% below the CMP.