This below ₹100 metal stock trades at ‘attractive valuations’. Should you buy?

SAIL reported sequential strong bounce back in EBITDA which was marginally higher than estimate. The company reported exceptional gains of ₹2.98bn on profit sale of land to the govt. The company partially benefited by ₹905mn pertains to prior period rail supply price change, inflating the EBITDA/t by c.218, highlighted analysts at PhillipCapital.

“As expected SAIL reported good improvement in its 3Q performance driven by lower CoP. However; increase in debt due to working capital requirement are a bit negative in the short run. With steel prices continue to increasing following jump in RM prices, SAIL would be relatively better than some of the peers as it saves on iron ore cost and have higher operating leverage which will benefit in in medium to longer run,” the note stated.

The brokerage believes that debt has already peaked out while EBITDA has more room to grow. SAIL continues to trade at discount to its peers and historic valuation. Therefore, it has maintained Buy rating on SAIL shares on ‘ trading at attractive valuations’ with target price of ₹105.

“For Q4FY23, we expect EBITDA/t of ~INR7,000 due to higher steel price and volume. Further, higher working capital will likely push FY23/FY24 net debt higher to ₹282 bn/ ₹234 bn. We increase FY23E EBITDA by 15% to factor in higher steel prices. Retain ‘HOLD’ on the metal stock with a target price of ₹92,” said brokerage Nuvama Research.

It expects margins to improve in Q4FY23 with higher realisation and volume. Debt has likely peaked in Q3FY23, and with the release in WC, debt should moderate Q4FY23 onwards. Improved WC coupled with higher earnings can fund SAIL’s next phase of expansion, likely FY25 onwards, it added.

SAIL shares have been currently hovering around ₹85 apiece on the BSE.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.