Shares of Steel Authority of India (SAIL) slipped 2 percent intraday on Friday as its offer-for-sale (OFS) kicks off. The government, which will divest its 5 percent stake in SAIL has fixed the floor price at Rs 83 per share.
Not very impressed, Macquarie has an underperform rating on the stock as it sees 30 percent downside at target price of Rs 63 per share. The brokerage prefers buying NMDC and JSW Steel instead of SAIL forsimilar but more efficient business model.
It says that SAIL looks cheap on asset valuations,but its competitive advantage has reduced by USD 65-70 per tonne due to a sharp fall in global iron ore prices. "This means that the expected improvement in SAIL’s margin post up-gradation/expansion will fail to materialise. SAIL expansion also comes at high capital cost of USD 1500 per tonne and is unlikely to be PAT positive on current iron ore prices," it says in a note.
Macquaire further adds that even under a blue sky scenario of USD 124 per tonne EBITDA and 18 million tonne volume in
FY17E, 6x EV/EBITDA implies equity value of Rs 90, indicating 5-6 percent upside from current market price.
The OFS
The government, which has 80 percent stake in SAIL, plans to sell up to 206.5 million shares through an auction on the stock exchanges. Through this, the government hopes to rake in Rs 1500-1700 crore.
"Government expects to garner Rs 1,500 crore to Rs 1,700 crore from SAIL disinvestment. Floor price will be Rs 83 and retail investors will get a discount of 5 percent," an official said after a meeting on SAIL disinvestment in the finance ministry.
The SAIL offering would be the first PSU share sale under the new government, which targets to raise Rs 43,425 crore through share sales in various state-owned firms during the ongoing fiscal. Retail investors would get a discount of 5 percent to the bid price in the SAIL offering.
As much as 10 percent of the offered shares has been reserved for retail investors, who can buy shares worth up to Rs 2 lakh in the share sale. A minimum of 25 percent of the issue size would be reserved for mutual funds and insurance companies.
The Cabinet had in July 2012 approved a 10.82 percent stake sale in SAIL.
HSBC Securities, Deutsche Equities, JP Morgan India are among the six merchant bankers advising the SAIL stake sale. While the new government assumed power in late May, there has been no PSU share sale so far in the current fiscal. During the previous 2013-14 fiscal, government has raised Rs 1,500 crore from sale of SAIL shares while the entire disinvestment proceeds stood at over Rs 16,000 crore.
At 09:18 hrs Steel Authority of India was quoting at Rs 84.15, down Rs 1.20, or 1.41 percent on the BSE.
(With inputs from PTI)
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