Steel Authority of India (SAIL) witnessed a 2 percent decline in morning trade on October 4, in line with the broader market sentiment as the Sensex and the Nifty also experienced losses. Adding to the pressure was a “sell” recommendation from Kotak Institutional Equities.
Kotak Institutional Equities cited ongoing raw material price pressures as the basis for its “sell” call on SAIL and set a target price of Rs 50, which is significantly lower than the closing price of Rs 91.7 on October 3.
As of 10:45 am, the stock was trading at Rs 90.30 on the National Stock Exchange, representing a 1.53 percent decrease from the previous close. Since early September, the stock has declined by more than 12 percent.
The brokerage expressed concerns about rising coking coal prices, a crucial component in steel production, which poses a risk to SAIL’s business. Spot coking coal prices were nearly 36 percent higher than the Q1FY24 average.
Kotak noted that SAIL’s earnings face substantial downside risks and highlighted the company’s expensive valuation relative to its declining market share, weak growth prospects, and a margin profile negatively impacted by inflated fixed costs.
In the June quarter, SAIL reported a 1.37 percent year-on-year (YoY) increase in revenue, reaching Rs 24,359 crore. However, net profit witnessed a significant 73.63 percent YoY decline, falling to Rs 212 crore. Operating profit margins contracted by 300 basis points YoY, reaching 7 percent.
Steel Authority of India is a public sector company that manufactures a wide range of steel products, including flat and long steel items used in construction, manufacturing, and infrastructure sectors.