Invest in SAIL with two-year perspective: expert suggests
Steel Authority of India Ltd (SAIL) has suffered a decline of nearly 35 per cent in its market capitalization since the start of this year, but the decline has made the government's offer-for-sale (OFS) initiative attractive.
The government is offloading its 5 per cent stake in the steel producer at Rs 63 a share, with an intention to pocket more than Rs 1,500 crore. The offer is attractive at that price as the price to earnings ratio works out to nearly eight times of the company's estimated earnings in the financial year 2014.
According to Macquarie Capital Securities' research head Rakesh Arora, SAIL shares are trading at an attractive valuation, but one should buy shares with a two-year perspective.
In other words, investment in SAIL stock may not produce attractive returns in short term. However, investment in the stock with a two-year perspective is expected to give good returns.
Describing the reason for the same, Arora said, "Over the next two years, benefits of its ongoing capacity expansion., will be fully realised. SAIL is doubling its capacity from the current about 12 million tonnes to 22-23 million tonnes by end-FY14."
If subscribed fully, the SAIL OFS would take the proceeds from the ongoing divestment processs in the current fiscal to around Rs 23,800 crore, which will be slightly lower than the government's revised estimate of Rs 24,000 crore.
Currently, the government holds 85.82 per cent stake in SAIL.