With Rs 55,500 crore m-cap, SAIL enters 100 most-valued Indian firms' club

Steel Authority of India Ltd (SAIL) on Tuesday regained market capitalisation (m-cap) of Rs 50,000 crore, after its stock climbed over 80 per cent in the past one and half month, on expectations of strong earnings in March quarter (Q4FY21) and a healthy outlook going forward.

The state-owned steel major also entered into the league of top 100 most valued companies in terms of market capitalisation. At 10:19 am, SAIL stood at 78th position in the overall m-cap ranking with a market cap of Rs 55,529 crore, BSE data shows.

In the intra-day today, the stock hit an over nine-year high of Rs 135.60, up 6 per cent, on the BSE. In the past six weeks, it has zoomed 85 per cent, as compared to a 2.6 per cent decline in the S&P BSE Sensex. It was trading at its highest level since July 2011.

SAIL is one of the leading steel producers in India, which has 5 large integrated steel plants (Bhillai steel plant, Rourkela steel plant, Durgapur steel plant, Bokaro steel plant and IISCO) spread across 4 states in eastern India (Chattisgarh, Odisha, West Bengal and Jharkhand). In addition, SAIL also has 3 special steel plants (Salem Steel plant, Alloy Steel plant and Visvesvaraya iron and steel plant) and a Ferro Alloy plant at Chandrapur.

For the first nine months (April to December) of fiscal 2020-21 (9MFY21), SAIL had posted a consolidated profit after tax of Rs 406 crore as against loss of Rs 704 crore during the same period of FY20.

In Q4FY21, SAIL had recorded its best-ever quarterly performance, both, in terms of production and sales. FY21 sales volume was at 14.87 MT compared with 14.23 MT in FY20, a growth of 4.4 per cent YoY, and was its best-ever annual sales volume during the financial year 2020-21 (FY21). 

The management said after the difficult market conditions during the initial months of the financial year, the company adopted a focused approach on improving its volumes and operational efficiencies, operating the facilities at optimum levels, deleveraging its balance sheet, reducing its inventory levels, etc.

"The multipronged strategy has helped us top the performances during the month, quarter, as well as, the year. The team effort by the SAIL employees helped in seizing the opportunity offered by the pick-up in the economic activities in the country especially the steel-intensive ·sectors like infrastructure, construction, automobiles, etc," the management added.

In line with its focus on reducing the borrowings, the company has reduced its gross debts by around Rs 16,150 crore to stand at Rs 35,330 crore (provisional) as on March 31, 2021 vis-à-vis Rs 51,481 crore as on March 31, 2020.

Analysts at Motilal Oswal Financial Services see SAIL as the best play on higher steel prices as it is backward integrated with captive iron ore, has a higher operating leverage due to high conversion cost, and has a higher financial leverage. With limited capex, higher pricing should drive significant deleveraging and boost equity value.

The brokerage firm estimates net debt to decline by Rs 23,200 crore over FY20-23E to Rs 30,500 crore. It also expects higher dividend payouts going forward (implying around 5 per cent yield), supported by strong free cash flow (FCF) of Rs 19/share (25 per cent yield), it said.