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The Government of India, which holds 75% of stakes in Steel Authority of India Limited, is to sell up to 10% of its holding through the OFS route (Bloomberg)
The Government of India, which holds 75% of stakes in Steel Authority of India Limited, is to sell up to 10% of its holding through the OFS route (Bloomberg)

SAIL share prices rally hits a speed bump

  • With an offer for sale kick-starting, the stock was down more than 8% in early deals trades on Thursday. The floor price of 64 for the OFS remains about 14% lower than the closing price of 74.70 on Wednesday

Steel Authority of India Ltd (SAIL) has given up a significant portion of strong gains it had seen during the recent past. With an offer for sale (OFS) kick-starting, the stock was down more than 8% in the morning trades on Thursday.

The Centre, which holds 75% of stakes in the company, is to sell up to 10% of its holding through the OFS route. Though initially only 20.65 crore shares, or 5% of government holdings, are being offered, the option has been kept open to offload another 5% stakes through greenshoe option.

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The floor price of 64 for the OFS remains about 14% lower than the closing price of 74.70 on Wednesday. The stock thereby was bound to correct in-line. The fact that there will be a higher number of shares available for trading on the exchange post the completion of OFS, the pressure on stock prices is expected to remain.

The rising steel demand and prices, on the other hand, has meant that the company’s earnings outlook has improved significantly. The stock had been gaining and scaled 52-week highs of Rs80.30 on 5 January, (up almost 134% since start of November).

Improved domestic demand and higher regional steel prices led the domestic mills to raise prices. The price hikes of about Rs13,000 a tonne for HRC (Hot Rolled Coils) and rebars prices were seen during the December quarter. With the rising realizations, strong demand is being anticipated to drive the company’s volumes and financial performance significantly. The sales volumes are pegged to grow to 4.42 Million Tonne (MT) during the December quarter from 4.21 MT seen in the previous quarter and 4.09 Million Tonne (MT) seen in the year-ago quarter. The14-15% rise in realizations on sequential and y-o-y basis means that Motilal Oswal Financial Services expects per tonne profitability (Ebitda/tonne) to grow more than four fold to Rs10,055 during Q3FY21 compared with Rs2,439 a tonne seen during Q3FY20.

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