Global brokerage Citi downgraded another major Indian steel producer SAIL to ‘sell’ and reduced the target price citing domestic price concerns and lower-than-industry average returns.
Analysts at the brokerage cut the target price from ₹110 per share to ₹80 per share, implying a potential downside of up to 7% against an earlier forecast of an upside of up to 26%.
Citi in a report mentioned that even as SAIL shares, at 0.6x P/B, trading at a discount to other large Indian peers, its low-single-digit Return on Equity expectations of 3% are a concern. Also, the expected returns are lower than the projected 8-18% ROE for other peers.
“Domestic steel price concerns, no relative valuation comfort,” Citi mentioned in the report.
Citi raised the FY24 EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) estimate by 7%, but cut FY25-26 EBITDA estimate by 6-7% on recent steel & RM price trends.
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Citi this month also downgraded other large steel companies JSPL and Tata Steel to ‘sell’ and reduced their target prices due to domestic price concerns.
Citi analysts believe that India steel prices could have downside risk if China prices do not rise as the premium to import parity is less than 10%.
High capital expenditure risks and pressure on EBITDA returns have also added to the bearish concerns.
The brokerage had the third-highest price target on JSPL but it cut the TP sharply to ₹560 from ₹810 earlier, which was the third-lowest price target for the steel firm.
Out of the 26 analysts, six gave a 'sell' recommendation on JSPL and four suggested a 'hold' while the rest 16 continued to stick with a 'buy' rating.
SAIL shares dropped around 2% to touch a low of ₹84.38 apiece on BSE in morning deals.
The stock was trading 1.2% lower at ₹85.80 apiece on BSE at 11.06 AM.
(Edited by : Asmita Pant)
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