SAIL’s Q4FY21 efficiency came in line. Key points: (i) Ebitda/t shot up 3.2x y-o-y to Rs 14,145 due to each larger realisation and volume (ii) debt reduction of 30% y-o-y in FY21 aided by working capital unlocking of Rs 64 bn (iii) interest price plunged 41% y-o-y to Rs 5.4 bn. Management has guided for 18.35mt of sales volume and Rs one hundred bn of additional debt reduction in FY22e.
Going ahead, we anticipate earnings to remain firm in H1FY22 owing to the sharp run- up in costs. However, we anticipate the price structure to inch up as effectively due to larger iron ore and manpower fees. All in all, we perceive balanced danger-reward. Maintain Hold with an unchanged TP of Rs 140 on 4.5x Q2FY23e Ebitda.
Robust efficiency and vigorous balance sheet clean-up
SAIL’s Q4FY21 efficiency met consensus estimates. Key points: (i) Ebitda/t was up 3.2x y-o-y at Rs 14,145 due to each realisation (up 24% y-o-y) and sales volume (up 16% y-o-y) uptick (ii) working capital unlocking primarily due to a sharp reduction in inventory (March-21: .8mt) facilitated gross debt reduction of ~Rs 180 bn from May-21 peak of Rs 538 bn iii) interest price slid 41% y-o-y to Rs 5.4 bn as the firm each repaid/refinanced higher-price lengthy-term debt (iv) the firm settled an entry tax dispute of Rs 1.7 bn with West Bengal by availing the amnesty scheme.
Going ahead, the firm expects FY22 sales volume at 18.35mt. Taking cognisance of prevailing costs and outlook, we anticipate considerable consensus upgrades. Our FY22e/FY23e Ebitda is 32%/15% ahead of consensus at present.
Fixed and variable fees may inch up
We anticipate FY22/FY23e Ebitda/t at Rs 16,470/11,460, reduce than peers as: (i) FY22e manpower price is most likely to be Rs 105 bn and (ii) added premium of 22.5% on iron ore mined from Jharkhand for captive use is most likely to inflate SAIL’s raw material fees. Besides, we see restricted benefit for the firm from robust export costs due to its larger domestic focus.
Outlook: Fairly priced
Despite most likely considerable consensus upgrades, we see balanced danger-reward for SAIL as the advantage of larger costs is most likely to be reduce than peers and price escalation is impending. Maintain ‘HOLD/SN’.