SAIL board approves signing term sheet with ArcelorMittal


The board of directors of SAIL in its meeting held on December 12, 2017, has approved the proposal for signing of a legally non-binding term sheet with ArcelorMittal S.A for entering into a joint venture for Automotive steel business. Definitive agreements in this regard will be finalized in due course subject to financial viability.
 
Shares of SAIL closed down by half a percent. The stock opened at Rs 80.25 it hit an intra-day high of Rs 81.30 and an intra-day low of Rs 79.05.

Steel Authority of India (SAIL) is a leading steel manufacturer with market share of ~20% in India.  Its capacity as of  FY17 stands at 13.8MTPA.
 
The company expects sales of ~16MT in FY18E, which would aid revenue growth in the near term. This would also be backed by government’s investment in steel intensive segments like infrastructure. Thus, we expect company to post 16% CAGR in revenue over FY17-19E. However, lower exposure to exports as compared to its peers prevents it from reaping export benefits. Besides, for coking coal, it largely depends on imports.

Thus, northward movement in coking coal prices is expected to constrain company’s profitability. Further, depreciation cost is also expected to rise in the wake of increase in net block due to expansion. Rising steel prices are expected to cushion company’s EBITDA margin, but that is not enough to offset spurt in costs. Its D/E has increased significantly from 0.94x in Q1FY17 to 1.21x in Q1FY18. Thus, we expect company to face an uphill task turning around bottomline mainly on account of capex through higher borrowings.




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