SAIL launches a call for tenders for the strategic divestment of an alloy steel plant

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SAIL has issued a call for tenders for its alloy steel plant in Durgapur. This sale is part of a decision to divest 3 units of SAIL – the Salem steel plant, the alloy steel plant and the Visvesvaraya iron and steel plant. The alloy steel plant focuses on the production of long and flat steel products as well as ingots and stainless steel. The total capacity of the alloy steel plant is 2.46 lakh MT per year of liquid steel, with 1.84 lakh MT per year of salable steel capacity. Total production for 9MFY18 for the Alloy Steel Plant was 69,961 MT with annualized capacity utilization of ~ 47%.

Alloy Steels plant turnover was Rs321.35cr for 9MFY18, while EBITDA was at a loss of Rs4.87cr. PAT for 9MFY18 resulted in a loss of Rs34.23cr. The first day for taking requests is February 14, 2018 and the last day is March 14, 2018. Notification to shortlisted bidders would be May 2, 2018.

SAIL Ltd’s results for T3FY18 clearly exceeded analysts’ estimates. The company has experienced strong growth in terms of sales and operations. Revenue increased 21.4% year-on-year to Rs15,323.6cr (expectation Rs14,694cr). EBITDA stood at Rs1,571cr, up 71.8% quarter on quarter against estimates of Rs1,367cr. EBIDTA’s margin increased 354 basis points year-on-year to 10.3%. Net profit stood at Rs43cr in Q3FY18 compared to a net loss of Rs795cr in Q3FY17. Sales volume for the quarter was 3.77 million tonnes, an increase of 15% year-on-year. Profitability enabled the company to reduce the cost per ton of steel by 10% year-on-year over 9MFY18.

SAIL is one of the leading steel manufacturers with around 20% market share in India. Capacity stood at 18.5 MTPA at the end of fiscal year 17. Crude steel production was 14.5 million tonnes (up 1.5% year-on-year) at the end of fiscal year 17. Fiscal year 17. Flat and long products respectively represented 50% and 40% of the value sold, alloys and secondary products each representing 5% of the value. Captive power generation stood at 820 MW, up 4.5% year-on-year at the end of FY17. The company spent ~ Rs 2,300cr on capital expenditure during S1FY18 and the total capital expenditure forecast for FY18 is ~ Rs4,000cr. SAIL is also for the establishment of an ultra mega steel plant in Bastar with a capacity of 6 mtpa through a joint venture.

We expect SAIL to post a CAGR of 13.8% in fiscal year 17-20E, aided by (a) volume growth of about 11% in steel production supported by expenses for infrastructure and (b) a favorable demand supply scenario to lead to firm prices for steel products. EBITDA margins are expected to increase to 11.3% in FY20E due to higher utilization levels and cost reduction measures. The stock is currently trading at 7.2x FY20E EV / EBITDA.

Steel Authority of India Ltd is currently trading at Rs 96.3, up Rs 0.95 or 1% from its previous close of Rs 95.35 on BSE. The script opened at Rs 96.55 and hit a high and low of Rs 97.7 and Rs 95.85 respectively. The share of BSE group “A” with a face value of Rs 10 hit a 52-week high of Rs 101.4 on 08-Jan-2018 and a 52-week low of Rs 53 on the 28th. -September-2017. Last week the high and low of the script stood at Rs 98.35 and Rs 77.4 respectively.

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