Steel Authority of India (SAIL), reported remarkable turnaround in its profitability for Q3FY21, beating our and street profitability forecasts. Its EBITDA/tonne jumped 4x YoY to Rs 12,235 as realization increased 11% YoY to Rs 44,737/tonne. Its EBITDA increased nearly 4x YoY to Rs 51 billion led by higher realizations and lower coking coal costs.

Interest cost decreased by 21% YoY to Rs 6.7 billion. Net profit was lower than our forecast by 37% at Rs 13 billion due to higher than expected tax rate at 65%. Its net debt fell to Rs 440 billion as of Dec. 31, 2020 from Rs 482 billion as on Sept. 30, 2020.

Commenting on the result review, the broking firm IDBI Capital Markets & Securities said, "We raise our realization estimates for FY21-FY23 by 10-12% as we foresee improved domestic demand and price recovery. Our FY21 sales/EBITDA estimates stand higher by 7%/19%. Even our FY22/FY23 EBITDA estimates are higher by 22%/31%. We value the stock at an EV/EBITDA multiple of 4x FY23 and upgrade the stock to a Buy (Hold earlier) with a target price of Rs 76 (earlier Rs 38)."

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