SAIL - Rs.64.00

Incorporated on 24th January 1973, Steel Authority of India Limited (SAIL) is the country’s largest steel maker with a market share of over 25 per cent in the domestic market. Ranked amongst the top ten public sector undertakings in India and by virtue of its ‘Navratna’ status, it enjoys significant operational and financial autonomy. It is a fully integrated iron and steel maker producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence sectors and for sale in export markets. It manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised plain and corrugated sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel and other alloy steels.

SAIL has the second largest mining outfit in the country after Coal India Limited. The merger of its subsidiary Indian Iron & Steel Company Limited (IISCO) with itself will further strengthen its raw material base. The company recently entered into an agreement with GAIL for supply of natural gas / R-LNG to its various plants in 2006-07, which will make it the first steel producer in India to opt for use of natural gas as an alternative source of coking coal To cater to the rising demand for steel, SAIL has chalked out a capex plan under which it will increase production from its plants to a level of about 20 MMT by 2012 against the current level of 13 MT. In Phase-I i.e. by 2006-07, it plans to invest Rs4300 cr. and around Rs20,000 cr. will be invested in Phase-II as per its corpoate plan 2012. This whole expansion will be funded by internal accrual and through debt.

Due to higher price realisation and strong demand both from domestic as well as international markets, the company is posting record profits and has already wiped out its accumulated losses and returned to the dividend list declaring 15% interim dividend for FY05. With every passing quarter, it kept improving its OPM. For the Dec.’04 qtr., it posted an impressive OPM of 40% compared to 20% last year. For the nine months period ending 31 Dec 2004, its sales increased by 30% to Rs19744 cr. But its NP zoomed 180% to Rs4140 cr. in spite of the huge tax provision of Rs1600 cr. In anticipation that the steel industry will continue to see robust demand for at least two more years, SAIL can report a turnover of Rs27750 cr. and NP of Rs5400 cr. leading to an EPS of Rs13 for FY05. It may declare further 10% as final dividend for FY05. Investors are advised to buy at the current price with an expectation of 50% appreciation in the next 12 months.