SAIL falls 2%, Kotak says ‘sell’ as cost pressures persist

According to Kotak, increasing prices of coking coal, an important fuel component of the steel-making process, poses a risk to the company’s business

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Steel Authority of India (SAIL) was down 2 percent in the morning trade on October 4 amid a fall in equity benchmarks the Sensex and the Nifty. A “sell” call by Kotak Institutional Equities didn’t help matters either

The brokerage cited raw material price pressures for the call and it set a target price of Rs 50, significantly lower from the closing price of Rs 91.7 on October 3.

At 10.45 am, the stock was trading at Rs 90.30 on the National Stock Exchange, down 1.53 percent from the previous close. The stock has fallen over 12 percent since early September.

According to Kotak, increasing prices of coking coal, an important fuel component of steel-making, poses a risk to the company’s business. Spot coking coal prices were nearly 36 percent higher from the Q1FY24 average.

“We see SAIL’s earnings facing significant downside risks. The company’s valuation is expensive considering its declining market share, weak growth prospects and depressed margin profile resulting from inflated fixed costs,” Kotak added.

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In the June quarter, the company reported a 1.37 percent year-on-year (YoY) rise in revenue at Rs 24,359 crore. Net profit dropped 73.63 percent YoY to Rs 212 crore. The operating profit margins contracted by 300 basis points on a yearly basis to 7 percent.

One basis point in one-hundredth of a percentage point.

Steel Authority of India is a public sector company manufacturing a wide range of steel products, including flat and long steel items used in construction, manufacturing and infrastructure sectors.

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