Sell SAIL, target of Rs 117: IIFL
IIFL has downgraded its rating on Steel Authority of India (SAIL) to sell with a 12-month target price of Rs 117 in its report dated May 29, 2009.
“SAIL’s 4QFY09 profit, at Rs 14.9 billion, came in substantially higher than our estimate (Rs 9.1 billion) and consensus (Rs 7.4 billion). The positive surprise is largely due to lower staff cost. SAIL being saddled with large workforce, outdated technology and high overheads has a high conversion cost. Conversion margins for steel producers will likely remain under pressure, as capacity utilisation is 70%. SAIL, with its high cost of production and reducing cost advantage (due to lower bulk prices) will see its profitability getting squeezed in the quarters ahead. Support from cash balance cannot be taken for granted, as we expect company to turn net debt in FY11 once full payment of increase in wages as per Sixth Pay Commission (SPC) is made and capex increases. We downgrade the stock to ‘Sel’l with 12-month target price of Rs 117,” says IIFL’s report.
source: MOneycontrol
Tags: iifl, sail, sail short term, sell rating, short term picks
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