SAIL's Stock Price Rises 50% In One Month

Shares of state-owned Steel Authority of India (SAIL) have gained more than 50% in the past one month.

The bulk of the gains have come in the last couple of sessions, with the stock skyrocketing 28% from Rs 100 to Rs 128.

While the entire metal pack has been on fire, SAIL has been the best-performing stock in recent weeks.

Key Triggers - Rising Steel Prices, Aggressive Capex Plans

Domestic steel prices have increased recently but still remain at a discount to imports.

Domestic hot-rolled coiled (HRC) steel prices have risen by Rs 7,000/tonne(t) in April and by Rs 4,000-4,500/t in May.

But they're still trading at a discount of Rs 8,000/t to the landed cost of imports. This implies room for further hikes.

SAIL is also in the middle of its most aggressive expansion plan. It's progressively commissioning new capacity.

The company has increased its capital expenditure target by 67% to Rs 80 bn for FY22 from the revised target of Rs 48 bn in FY21.

Over the years, SAIL has been a laggard due to project delays, high employee costs, and a high-cost structure compared to its peers.

However, after the difficult market conditions during the initial months of FY21, the company has adopted a focused approach on improving its volumes and operational efficiencies and deleveraging its balance sheet.

Going forward, the company is expected to see better operational efficiency which could lead to gains of Rs 2,500-3,000/t in the next two years.

Commodity Cycle, Chinese Emission Reforms Aid Stock

Steel stocks have recently been beneficiaries of the robust demand by various sectors and have been supported by the government's infrastructure pipeline. De-leveraging and capex have also aided the momentum.

China's push toward carbon neutrality is also a trigger to drive prices higher.

With the objective of going carbon neutral and reducing emissions, China has now removed a rebate on value-added tax (VAT) charged on exports of several steel products.

This makes exports for steel companies in China less attractive.

With global steel production picking up due to increased demand and a production shift from China, iron ore prices could remain supported.

How the Stock Has Performed Recently...

The stock price of SAIL has sky-rocketed over 100% since the Union Budget and over 50% in the last month given its higher sensitivity to prices.

The Nifty metal index is also on a remarkable run since the beginning of February, surging 62% so far.

Even the second wave of the coronavirus pandemic has failed to clamp down on the rally in the metal index.

Most leading steel companies such as Tata Steel and JSW Steel are currently trading at their lifetime highs.

In the last one month shares of these companies have risen over 20% and 30%, respectively.

Shares of SAIL opened at Rs 129.9 on the BSE and Rs 129.7 on the NSE today. At its current price, it is trading at a P/E ratio of 16.9.

About Steel Authority of India

Steel Authority of India Limited (SAIL) is an Indian government owned steel manufacturing enterprise based in New Delhi, India.

With an annual production of 16.3 m metric tons, SAIL is the largest steel producer in India and the 20th largest steel producer in the world.

SAIL operates and owns five integrated steel plants at Bhilai, Rourkela, Durgapur, Bokaro, and Burnpur (Asansol) as well as three special steel plants at Salem, Durgapur, and Bhadravathi. It also owns a Ferro Alloy plant at Chandrapur.

As a part of its global ambition, the company is undergoing a massive expansion and modernisation programme. This involves upgrading and building new facilities with an emphasis on state-of-the-art green technology.

For more details about the company, you can have a look at SAIL's factsheet and SAIL's quarterly results on our website.

You can also compare SAIL with its peers -

SAIL vs Tata Steel

SAIL vs JSW Steel

SAIL vs ISMT

SAIL vs Tata Steel BSL

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