Why SAIL Share Price is Rising

Steel Authority of India (SAIL) needs no introduction.

In recent weeks, there have been many major developments for the PSU company.

Here are some that our scanner picked out -

Shares of the iron & steel maker are up nearly 33% so far in 2024.

In fact, SAIL shares recently surpassed key levels and broke out of underperformance to trade at decadal highs.

Investors need to understand some critical details before they decide to buy/sell SAIL.

Let's first understand the reasons behind the sharp rally in SAIL share price.

#1 Strong Sectoral Outlook

On 24 April 2024, the BSE Metal index rallied 3% to become the top gainer during the day as rise in base metal prices sent metal and steel stocks to multi-year highs.

As we mentioned in our previous editorial, commodity prices have started to shoot up and when this happens, there's no stopping commodity stocks.

Remember the commodity supercycle right after the pandemic? Metal stocks became the biggest gainers as most of them rallied around 300% in a year!

As things are now, base metals have witnessed a sharp spike in April. Among the key base metals, Copper is trading at 2-year high while Aluminum is at its highest level since June 2022. Zinc is also at 1-year high.

In 2024, Indian metal stocks have received a boost owing to a strong pickup in industrial growth numbers in China.

China is the largest consumer of commodities in the world and any pickup in Chinese demand can possibly lift overall global steel demand.

What's more, the market experts are of the view that there can be further easing of policy by China's central bank in its bid to boost its economy.

So safe to say that the strong sectoral outlook this time is here to stay for a long time.

#2 SAIL's Undervaluation Against Peers

Apart from strong sectoral outlook, SAIL shares are in demand because investors are fancying SAIL over its peers Tata Steel and JSW owing to cheaper valuations.

Even though SAIL has similar steel capacities, its marketcap is around 1/3rd of Tata Steel and JSW.

Look at the comparative analysis below where you could see SAIL's book value much lower than Tata Steel and JSW.

Comparative Analysis

Company	SAIL	Jindal Saw	Jindal Stainless	JSW Steel	Tata Steel
ROE (%)	4.0	5.8	22.1	6.3	7.5
ROCE (%)	6.3	10.5	20.9	8.9	13.5
Latest EPS (Rs)	7.5	47.7	36.2	45.7	-2.7
TTM PE (x)	21.9	11.1	20.4	19.3	0
TTM Price to book (x)	1.2	1.8	4.4	2.8	2.3
Dividend yield (%)	0.9	0.6	0.3	0.4	2.2
Industry PE	35.1
Industry PB	2.6

Data Source: Ace Equity, Equitymaster

One reason for this undervaluation can be SAIL's categorization as a PSU.

But this could change soon as the momentum in the stock is strong, and shares could just as well continue to rise along with the entire metals pack.

SAIL also has a strong credit profile and has lower leverage than Tata Steel.

Investors must also note that SAIL currently trades at a price to book value (P/BV) multiple of 1.2x compared to its 5-year average of 0.7x.

What Next?

Going forward, investors are hoping for SAIL to continue its momentum as demand is expected to pick up, given the government's massive expansion of sectors like infra, auto, railways, etc. Almost all the industries in some or the other way require steel.

SAIL also has decent financials to boast about with its debt coming down significantly in the past 5 year.

Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Net Sales	669,736	616,642	691,136	1,034,768	1,044,477
Growth (%)	16%	-8%	12%	50%	1%
Operating Profit	102,560	111,215	135,994	222,001	89,898
OPM (%)	15%	18%	20%	21%	9%
Net Profit	23,487	21,207	41,481	122,435	21,765
Net Margin (%)	4%	3%	6%	12%	2%
ROE (%)	6.1	5.2	9.6	24.6	4.0
ROCE (%)	8.0	7.5	11.2	23.3	6.3
Dividend (Rs)	0.5	0.0	2.8	8.8	1.5
Debt to Equity (x)	1.1	1.3	0.8	0.3	0.6

Data Source: Ace Equity

SAIL is expected to announce strong Q4 numbers. For the first nine months of FY24, SAIL reported its best-ever physical performance with improvements in various key metrics.

It has major expansion plans including capacity increase to 15 million tons by 2030-31, upgrade to Rowghat mine, among others.

How SAIL Share Price has Performed Recently

In the past 5 trading sessions, SAIL share price has increased by 15%.

In a month, the stock is up around 26%.

SAIL has a 52-week high of Rs 167 touched on 25 April 2024 and a 52-week low of Rs 81 touched on 26 May 2023.

In the past 1 year, shares of the company have rallied 103%.

About SAIL

SAIL is one of the largest public sector companies manufacturing iron and steel in India.

Though the Government of India owns 65% of the company's equity, this 'Maharatna' enjoys operational and financial autonomy.

It exports its products to over 30 countries and has been strengthening its presence in the international markets.

SAIL has the most diversified product range offered by any domestic steel company. It caters to a large number of industries, including power, road and rail infrastructure, oil and gas, irrigation, and airport and port infrastructure.

For a detailed analysis, check out SAIL factsheet.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...