Rakesh Jhunjhunwala adds this PSU in his portfolio, check details

Ace equity investor Rakesh Jhunjhunwala, known for picking multibaggers, has bought a stake in public sector unit Steel Authority of India (SAIL) that has rallied 61% since the beginning of the current financial year from Rs 78.80 to Rs 126.55. Data shows that Jhunjhunwala, owns 5,75,00,000 shares, or 1.39%, in the company. It could not be ascertained if he earlier held any shares of the firm as companies are required to publish names of shareholders only if their individual holdings are above 1%. Foreign portfolio investors (FPIs), who have been binging on Indian equities throughout the quarter, raised their stakes in the company to 5.01% in June 2021 compared to 4.32% in March 2021.

Shares of SAIL were trading (as of 12:23 pm) at Rs 126.55 apiece up Rs 2.05 or 1.65%

Should you follow?

The ongoing rally in commodities has made analysts bullish on steel stocks. Brokerages believe SAIL can be a doubler as it has been the biggest beneficiary of improved pricing.

Here’s what they have to say:

Equirus | Price target: Rs 295 | Upside: 134%

Steel prices are likely to stay elevated over the next 9-12 months as the cost of production in China has risen to ~US$ 750/tonne, a ramp-up in world steel production ex-China is further increasing ore prices, and chatter of export tax on steel in China is likely to lower steel exports. With iron ore prices trading above US$ 200/ tonne, SAIL – as an integrated producer – is likely to benefit the most. Going ahead, we expect EBITDA (earnings before interest tax depreciation & amortization) to benefit from higher alloy steel plants, which will improve SAIL’s cash flows and strengthen its balance sheet. It’s net debt to drop to Rs 15,800 crore in FY22E and further to Rs 200 crore in FY23E.

Motilal Oswal | Price target: Rs 185 | Upside: 46%

SAIL continues to reap the benefits of higher steel prices as 4QFY21 EBITDA (earnings before interest tax depreciation & amortization) grew 21% QoQ, despite a wage revision impact. In the absence of significant capex, net debt declined further. With steel prices at a record high, SAIL is poised to post its best-ever EBITDA/t of ~INR20,000 in 1QFY22.

SAIL is the biggest beneficiary of improved pricing. Despite factoring in a conservative realization (~15% discount to spot) and higher coking coal prices (US$165/tonne) in FY22E, SAIL’s EBITDA to grow by over 100% YoY to Rs 27,000 crore. A further Rs 10,200 crore (Rs 25/share) fall in net debt to Rs 26,500 crore (1x of EBITDA) in FY22E on the back of higher operating cash flows.

Phillip Capital | Price target: Rs 161 | Upside: 27%

Increasing volumes would continue to drive operational efficiency. Some short term pricing pressure on long products can be expected, the medium-term outlook remains positive as higher volumes would drive strong cash flow aiding further reduction in net debt. Approval from Jharkhand to sell iron ore will be an added bonus. Increased our volume and realisation assumption by 5% and 8% for FY22. Also, with debt reduction higher than expected, our target prices have increased from Rs 100 to Rs 161.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing)