Axis Securities upgrades SAIL to 'buy' with Rs 130 target

Axis Securities has upgraded its rating for Steel Authority of India Limited (SAIL) to "buy" from "hold." The new target price is set at Rs 130, suggesting a potential upside of 19% from its recent closing price. The firm noted that SAIL is significantly affected by changes in steel and coking coal prices. For instance, a Rs 1,000 increase in Hot Rolled Coils prices can raise SAIL’s earnings by 15%. In contrast, Tata Steel would see only a 4% increase under the same conditions. A drop in coking coal prices also benefits SAIL, increasing earnings by 10%. Axis Securities believes the outlook for SAIL is improving as steel spreads have started to stabilize, making the investment more attractive. They also mentioned that while SAIL's current valuation is better than its recent peak, it is still above its long-term average. The company plans a significant expansion, increasing its steel production capacity from 20 million tonnes to 35 million tonnes. This will involve investments of Rs 1.1-1.2 lakh crore in multiple phases. The first phase aims to add 7.5 million tonnes by FY31, with approvals already in place for several projects. However, SAIL faces challenges, including high debt levels and past delays in expansions. The company is currently working to reduce its borrowings, which have decreased recently to Rs 32,600 crore. It aims to lower this further to Rs 30,500 crore. Despite the concerns about potential delays and costs in its next expansion phase, Axis Securities sees the company's recent dip in valuations as a favorable investment opportunity.