STEEL AUTHORITY OF INDIA LTD
Reco price/date: Rs 48/July 8;
Current/target price: Rs 49.95/Rs 38
The Steel Authority of India (SAIL) stock price has declined 51 per cent over the six months compared to a three per cent drop in the Nifty during the same period. We believe the correction is not yet over as weak demand, slow expansion project ramp-up and languid marketing strategies would ensure a downward revision in consensus earnings estimates for the coming quarters. We have fine-tuned our earnings estimates based on the pricing trend over the past few months, leading to a nine per cent and 15 per cent cut in our Ebitda estimates for FY14 and FY15, respectively. The benefit from lower coking coal prices would be offset by rupee depreciation, while price hikes (following rupee depreciation) would be limited owing to weak demand. Maintain SELL.
HINDUSTAN ZINC LTD
Reco price/date: Rs 102 /July 8;
Current/target price: Rs 101.15/Rs 139
We have cut our metals price expectations in line with the current weak trend of the LME and the rupee. But there is improved confidence on the company marching towards delivering mining growth-led improvement in integrated (relatively much higher margins) metal production in FY14 and beyond. This would cushion earnings to large extent even if present metal price weakness extends through FY14. Our Ebitda and EPS estimates for FY14e are moderated a mere 1.5 per cent, while we cut our valuation multiple to 5x from 5.5x EV/Ebitda for FY14E. Our fair valuation/ target price indicates BUY.