Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

SAIL Target : Rs 320 : CMP 277.20

5 min read

Script Name : SAIL
Taget           : Rs 320
CMP             : Rs 277.20
Time Frame : 1 Month
 
 
Company Profile
 
Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets.
 
Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the distinction of being India’s largest producer of iron ore and of having the country’s second largest mines network. This gives SAIL a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making.

SAIL's wide range of long and flat steel products are much in demand in the domestic as well as the international market. This vital responsibility is carried out by SAIL's own Central Marketing Organisation (CMO) and the International Trade Division. CMO encompasses a wide network of 34 branch offices and 54 stockyards located in major cities and towns throughout India.

With technical and managerial expertise and know-how in steel making gained over four decades, SAIL's Consultancy Division (SAILCON) at New Delhi offers services and consultancy to clients world-wide.

SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which helps to produce quality steel and develop new technologies for the steel industry. Besides, SAIL has its own in-house Centre for Engineering and Technology (CET), Management Training Institute (MTI) and Safety Organisation at Ranchi. Our captive mines are under the control of the Raw Materials Division in Kolkata. The Environment Management Division and Growth Division of SAIL operate from their headquarters in Kolkata. Almost all our plants and major units are ISO Certified.

Major Units

 

 

Integrated Steel Plants
Bhilai Steel Plant (BSP) in Chhattisgarh
Durgapur Steel Plant (DSP) in West Bengal
Rourkela Steel Plant (RSP) in Orissa
Bokaro Steel Plant (BSL) in Jharkhand
IISCO Steel Plant (ISP) in West Bengal

 
Special Steel Plants
Alloy Steels Plants (ASP) in West Bengal
Salem Steel Plant (SSP) in Tamil Nadu
Visvesvaraya Iron and Steel Plant (VISL) in Karnataka
 
Subsidiary
Maharashtra Elektrosmelt Limited (MEL) in Maharashtra
 
Joint Ventures
SAIL has promoted joint ventures in different areas ranging from power plants to e-commerce.
 
NTPC SAIL Power Company Pvt. Ltd
A 50:50 joint venture between Steel Authority of India Ltd. (SAIL) and National Thermal Power Corporation Ltd. (NTPC Ltd.), it manages the captive power plants at Rourkela, Durgapur and Bhilai with a combined capacity of 314 megawatts (MW)
Bokaro Power Supply Company Pvt. Limited
This 50:50 joint venture between
SAIL and the Damodar Valley Corporation formed in January 2002 is managing the 302-MW power generation and 1880 tonnes per hour steam generation facilities at Bokaro Steel Plant.
Mjunction Services Limited
A joint venture between SAIL and Tata Steel on 50:50 basis, this company promotes e-commerce activities in steel and related areas.
SAIL-Bansal Service Center Ltd.
SAIL has formed a joint venture with BMW industries Ltd. on 40:60 basis to promote a service centre at Bokaro with the objective of adding value to steel.
Bhilai JP Cement Ltd
SAIL has also incorporated a joint venture company with M/s Jaiprakash Associates Ltd to set up a 2.2 MT cement plant at Bhilai
SAIL has signed an MOU with Manganese Ore India Ltd (MOIL) to set up a joint venture company to produce ferro-manganese and silico-manganese at Bhilai.
Ownership and Management
The Government of India owns about 86% of SAIL's equity and retains voting control of the Company. However, SAIL, by virtue of its ‘Navratna’ status, enjoys significant operational and financial autonomy
 
 
Recent Buzz in SAIL
 
SAIL plans Rs 53K cr capex over next 3-5 yrs
 
 

SAIL has planned a capex of Rs 53,000 crore over next 3-5 years, SK Roongta, CMD , SAIL informed CNBC-TV18. SAIL will hike its hot metal capacity to 26 mt, he said. The company’s debt-equity ratio is seen at 1:1 for the planned capex. Roongta said that steel demand is likely to grow 10-12% next year also.

Roongta, believes that steel prices are at healthy levels currently. He was speaking to CNBC-TV18. Roongta said that steel players are seeing price hike of USD 50-70/tonne in January. The demand growth will slow in case of US recession, he feels.

 

 

Q: What is your outlook on prices, given the way the raw material prices are spiking up?

 

A: Steel prices currently are at quite a healthy rate. But there are certain concerns relating to raw material input prices for the steel industry; especially two major inputs – iron ore and coking coal. The long-term price for the year 2008-09 has to be settled across the globe for these two major raw materials. There are expectations that there will be substantial increases in the prices of both these raw materials, which will push the cost up for every steel producer; anywhere ranging from USD 50 to USD 70 per tonne and obviously that may impact steel prices a little bit.

 

Q: What does this mean for realizations and volume growth going into the first half or the first couple of quarters of the next calendar year?

 

A: As far as steel demand in India is concerned, it is growing at a very healthy rate of 10%-12% and we expect that demand will continue to grow at that rate. So volume growth in demand will come for year 2008-09 as well. We expect that this trend will be maintained. So we do not expect any problem with regard to marketability of steel.

 

Q: How much are you provided for in-house with your own iron ore and coking coal facilities? Would this rise in prices translate into a margin improvement for you? Basically, what kind of margins are you expecting in the first half of 2008?

 

A: We are provided for full captive use of iron ore for our current production. So any change in the iron ore prices may not impact our costs. But regarding coking coal, to a great extent we depend upon imported coking coal – almost 70% of our needs are imported and we get about 25% from Coal India. We have just about 5% in-house coking coal production. So that is going to certainly impact our cost. Added to that, are the increasing costs of shipping. So these two factors will certainly impact our costs as well. Margins will depend upon how steel prices behave in 2008.

 

Overall demand is growing. But there are certain concerns relating to economic risks; related to subprime issues in US. If that impacts the US economy and global economy in general, then the rate of growth of steel consumption might slowdown in 2008. So the prices may also be determined by the overall demand in supply and producers may not be able to pass on the entire cost increase.

 

Q: Specifically with regards to your capacity now, your hot metal capacity  – you are going to hike it to 26 million tonne; what is the outlay in terms of investments in capital expenditure plan that you can lay out for us over the next 24-36 months?

 

A: We are hiking our hot metal capacity from 14 million to 26 million tonne over the next three-three and a half years and outlay for this entire capacity expansion is going to be of the order of about 50,000 crore or USD 12 billion. That also includes outlay for our sustenance schemes. If we have to continue with the current capacity, we have to do certain minimum investments and also for technological upgradation like converting our semi-finished steel into finished steel, which does not add to capacity expansion, but improves our product mix.

 

For example, we are still having about one-third of our production through energy inefficient route, which we are going to convert into 100% continuous cost route. So all these three factors put together our outlay will be roughly about 50,000 crore.

 

Q: Twelve months from now, what is likely to be your capacity, are you likely to see some expansion already in one year and secondly are you likely to tap any resources from the market or the banks in the next twelve months. If so, what kind of instruments and how much?

 

A: Next twelve months, we are not adding to any nameplate capacity. But we are certainly working on certain internal efficiencies and from the same capacity through better utilization; we can improve our production and productivity. But we are not adding to the new capacities in the next twelve months.

 

Q: Lastly for the entire capex that you have pointed out for us, what sort of debt-equity ratio will SAIL maintain over the next three years and what are you currently equipped at on the debt equity ratio?

 

A: I think we have mentioned it in the past also that for the entire capex plan of SAIL, we have planned for a debt equity ratio of 1:1 and we should be able to generate 50% of our required resources internally and we will go for debt for the balanced 50%.

 

 
 

 

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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