Business

SAIL offer for sale opens today: Here's everything you need to know

Updated : January 14, 2021 01:15 PM IST

The government will divest a 5 percent equity stake while keeping the greenshoe option of 5 percent.

GOI's current stake in the PSU amounts to 75 percent and will come down to 65 percent if the issue goes through.

The offer for sale (OFS) of up to 10 percent equity stake of Steel Authority of India Limited (SAIL) opened on Thursday for non-retail investors while it will open for retail investors on Friday.

Through OFS, the government will divest a 5 percent equity stake while keeping the greenshoe option of 5 percent. It is looking to raise over Rs 2,600 crore through this drive.

GOI's current stake in the PSU amounts to 75 percent and will come down to 65 percent if the issue goes through.

SAIL is a great play on rising steel prices as it has both the highest operating and financial leverage in the sector. Govt has picked a good time for the offer as SAIL has solid triggers that can lead to good subscription, analysts told CNBC-TV18.

Here's all you need to know about SAIL and the OFS:

The total OFS size is 20.6 crore shares of face value Rs 10 each, with an option to additionally sell up to 20.6 crore equity shares. 12.5 percent of the offer is reserved for retail investors.
Its floor price is Rs 64, at a 14 percent discount to yesterday's close. Its stock has surged more than 38 percent, gaining in eleven of the last sixteen sessions till Monday. During the previous three months, the stock was the best performer on the Nifty Metal index.
The issue comes at a time when the current markets are very supportive as demand is strong, and the prices are at their all-time highs.
Coking coal, one of the key irreplaceable inputs for steel production, is priced at $15 per tonne lower, and its benefit on the company will be seen partly in Q3FY21.
Rising iron prices can be a sore point for non-integrated players, but SAIL is protected from increasing iron prices, as it is backward-integrated with respect to iron ore.
Moreover, SAIL has the mandate to sell up to 25 percent of the freshly mined ores, and they have sold roughly 2.3 million new fines through auctions, which will further boost its profits. In Q4FY21, the company has targets to sell at least 3 million tonnes of fresh fines, dumps, and tailings.
Debt reduction of the company is likely to pick in the following quarters, and the cost of borrowing will likely dip by approximately 100 bps, which will boost the bottom line. By FY21, the company aims to reduce its debt burden below Rs 40,000 crore. As of April 2020, the company's net debt was Rs 51,000 crore, which fell to Rs 44,308 crore in the current quarter.
While the steel market is structurally tightening, SAIL's volume growth is picking up. The steel major has set its FY21 sales target at 15.5 million tonnes and FY22 sales target at 18 million tonnes.
The company is in the midst of an expansion and modernization program, which has led to an increase in CAPEX and debt. Receivables from Railways and high employee costs pose additional risk to the steel giant.

SAIL offer for sale opens today: Here's everything you need to know

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