SAIL under pressure as Kotak sees 45% downside in stock price. Here's why

Explaining its stance on the steel major, the domestic brokerage said that SAIL was the most vulnerable to rising coking coal prices due to its high-cost and lower-margin steel business.

Notably, spot coking coal prices are 36 percent higher compared with the Q1 FY24 average, posing significant downside risks to SAIL’s earnings going ahead.

Earlier this week, SAIL chairman Amarendu Prakash also said on the sidelines of an industry event that ongoing higher prices of coking coal were a direct hit on the company’s margins. He added that Europe’s carbon tax mechanism would add to the cost of Indian steel exports to Europe, further squeezing margins.

Kotak also mentioned that it found SAIL’s valuations expensive, considering the company’s declining market share and weak growth prospects, depressed margin profile due to inflated fixed costs and the risk of rising leverage in case it starts growth capital expenditure.

Reports earlier this week quoted Prakash saying that SAIL was planning to invest Rs 5,500 crore during the ongoing financial year to expand capacity. Reportedly, the Rs 5,500 crore is part of the Rs 11,000 crore that SAIL had planned to spend on augmenting existing facilities.

Shares of SAIL were trading at Rs 90.50, down 1.30 percent, on BSE at 9:45 AM.