Recommendation From Steel Sector

Here is Why

Central government’s massive infrastructure pushes especially in road sector, emphasis on new highways, Smart City project, push in metros have brought many reasons to smile for companies like SAIL. The regular increment of rail network in the country will also lead to fresh demand for steel. The estimated infrastructure investment of USD 1 trillion, rise in urban population, emergence of rural market will definitely further demand for this metal. Schemes like Bharat Nirman, Pradhan Mantri Gram Sadak Yojana will also boost steel demand in the country. SAIL manufactures and sells a range of steel products. The company's segments include five integrated steel plants, Bhilai Steel Plant (BSP), Durgapur Steel Plant (DSP), Rourkela Steel Plant (RSP), Bokaro Steel Plant (BSL) and IISCO Steel Plant (ISP). It has three alloy steel plants, Alloy Steels Plant (ASP), Salem Steel Plant (SSP), Visvesvaraya Iron & Steel Plant (VISP). SAIL’s products include flat products, such as hot rolled (HR) coils, HR plates, cold rolled (CR) coils, pipes and electric sheets, and long products, such as thermo mechanically treated (TMT) bars and wire rods. It also manufactures long rails, blooms, billets, slabs, channels, joists, angles, forged alloy and special steel products, among others.

Many decisions which already have been taken by the government to protect metal manufacturers in the country and dumping of metals from China will further benefit SAIL. It has imposed MIP (Minimum Import Price) on 173 steel products and anti-dumping duty on steel items used in automotive and construction industry from China in order to protect domestic steel producers. Due to this, steel imports declined by 41 per cent to 0.546 million tonnes (MT) in May 2016 as compared to same period in previous financial year, as per government data. The data also shows that steel imports accounted for 14 per cent of the country's total consumption, which rose 4.3 per cent in the last fiscal year. The government also imposed Safeguard Duty, increasing customs duty. It also has placed steel import under mandatory BIS certificate (Bureau of Indian Standards).

On financial front, revenue of SAIL decreased by 15.76 per cent to Rs 39463 crore in FY16 as compared to previous fiscal year. The company posted EBIDA loss of Rs 3270 crore in FY16 against EBITDA of Rs 4634 crore in FY15. Meanwhile, it reported net loss of Rs 4001 crore inFY16 while net profit of the company stood at Rs 2118 crore in FY15.

On valuation front, SAIL is trading at PB multiple of 0.51x times as compare to JSW Steel 1.81x times and Tata steel 1.17x times. The company’s share price is trading less than its book value of Rs 97.25. The company has strong dividend yield at 4.07 per cent.