Tussles over Jharkhand's Chiria iron-ore mines have come to a much-awaited end, in favor of SAIL. With the Chiria deposits, SAIL is now well placed for 100% iron-ore integration, even post capacity expansion. Maintain Buy.
n MoEF approves Chiria leases to SAIL. The Ministry of Environment & Forest (MoEF) has granted forest clearance for Ajitaburu, Budhaburu and Sukri-Latur leases of Chiria mines to SAIL. This would help SAIL to remain 100% self-sufficient in iron ore for several years, even after capacity expansion. This further strengthens SAIL's position as regards iron ore integration.
n Chiria - One of the largest iron-ore deposits. Chiria mines in Jharkhand have one of the largest iron ore deposits in the country, with total reserves of ~1.8bn tons, of which SAIL has been granted approval for ~1bn tons. Capacity at this deposit is likely to be as much as 30-50mtpa and SAIL expects to fulfill 40% of its requirement from the Chiria mines in the long term.
n Development by FY15. Management has indicated capex of `50bn on development of the Chiria mines. The mines are expected to be commissioned by FY15; by then, SAIL's capacity is likely to have expanded to ~26mtpa from 13mtpa at present.
n Valuation and risks. At current market price of `161, the stock trades at FY12e PE of 9.1x and EV/EBITDA of 7.4x. We remain positive on the stock, given SAIL's huge capacity addition plans, strong balance sheet and high level of backward integration in iron ore. Maintain Buy with target price of `201.
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
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