SAIL shares drop as lower profit, higher input cost dent Q1 results. Stock price target at Rs 80, says Motilal

Shares of state-run Steel Authority of India Ltd (SAIL) fell over 2 per cent in Friday's trade after the Maharatna reported an 81 per cent slump in June quarter profit as expenses grew faster than revenue. The steelmaker net profit was Rs 150 crore for the quarter ended June 30, compared with Rs 776 crore a year earlier.

"Lower volume offtake and higher input cost dent performance," said Motilal Oswal Securities as it maintained its 'Neutral' stance on the stock with a target of Rs 80.

The stock fell 2.47 per cent to hit a low of Rs 92.93 on BSE. It later recovered to Rs 91.80 level, still down 1.22 per cent.

Motilal Oswal said while steel prices are influenced by changes in international markets, SAIL caters to the domestic market, and hence the risk from international price movement is mitigated to some extent. Domestic steel demand, it said, is expected to remain robust, with a pickup expected in sectors such as infrastructure, construction, power, consumer durables, automobiles.

"Though Q2 is relatively a subdued quarter due to monsoons, SAIL in July produced 1.7 mt of crude steel (up 20.3 per cent YoY). The government’s focus on capex in the infrastructure sector, as well as healthy capex by the private sector, should boost demand for domestic steel in the coming quarters. We currently have a Neutral rating on SAIL with a TP of INR80. We would review our estimates post the earnings call," the brokerage said.

SAIL said its total expenses rose 5.6 per cent, while revenue from operations barely rose at 1.4 per cent to Rs 24,358 crore. Subdued demand from China, the world's top steel consumer, remained a drag on global steel prices while the availability of cheap imports and an inventory pile-up compounded the price concerns in the domestic market. Last month, rival Tata Steel reported a slump in profit hurt by lower prices, while others like JSW Steel and Jindal Stainless saw their profit rise on higher sales.

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SAIL, under the Ministry of Steel, is among the top four steel manufacturing companies in India.

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