Angel: SAIL - FPO Note
Rajesh Desai
Dear All,
Forwarding you the FPO Note on SAIL with an Avoid recommendation.
The Promoter (Government of India), proposes to sell 24,03,96,572 equity shares of face value of `10 each representing 5.8% of the total paid up equity share capital of the company. SAIL has fixed the OFS floor price at `63 per share (at a 1.4% discount to its closing price as on March 21, 2013). We expect SAIL’s operational and financial performance to remain weak during FY2014 due to its: 1) inability to maintain/raise sales volumes amidst slower steel demand in India; 2) higher fixed costs, and 3) delays/cost overruns in its brownfield expansion projects. SAIL is on the verge of expanding its saleable steel production capacity from 12.5mn tonne to 24.0mn tonne by FY2015. However, we believe that there is still time to play the volume growth story of SAIL. Moreover, it is expensively valued at the offer-for-sale (OFS) floor price of `63 (7.2x FY2015E EV/EBITDA). Hence, we recommend investors to Avoid subscribing to SAIL OFS.
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CA. Rajesh Desai