Continue focus on cost optimization to drive growth …
About the stock : Steel Authority of India Ltd (SAIL), is a government owned entity and one of India’s largest steelmakers having crude steel capacity of ~21 MTPA).
• Operates five integrated steel plants i.e. Bhilai Steel plant, Durgapur Steel plant, Rourkela Steel plant, Bokaro Steel plant, and IISCO Steel plant.
Q1FY2 7 performance : SAIL reported a healthy performance in Q1FY27. Consolidated topline stood ₹26,246 crore (up 1% YoY) with steel sales volume of 4.2 MT (down 10% YoY). Reported EBITDA stood at ₹4,153 crore with corresponding EBITDA margins at 15.8% (up ~151 bps QoQ). Adjusted EBITDA/tonne stood at ₹10,725 vs ₹8,287 in Q4FY26. Consolidated PAT for the quarter stood at ₹1,644 crore, (vs.₹ 1835 crore in Q4FY26), including an exceptional expense of ₹144 crore towards the Voluntary Retirement Scheme.
Investment Rationale:
• Strong structural growth supported by domestic steel demand and capacity expansion : India remains one of the fastest-growing steel markets globally, with per capita steel consumption of 103 kg, significantly below the global average of ~215 kg, indicating ample headroom for demand growth. Backed by the government’s vision to increase crude steel capacity to 300 MT and per capita consumption to 160 kg by FY31, SAIL is undertaking an aggressive capacity expansion programme. The company aims to increase its crude steel capacity from ~21 MTPA to ~35 MTPA by FY31, including the expansion of its IISCO facility from 2.5 MTPA to 7 MTPA by FY29 through a ₹36,000 crore investment. In addition, debottlenecking and brownfield expansion across existing facilities are expected to enhance operational capacity. With this, we forecast sales volumes to grow 6% CAGR over FY26-28E, reaching ~22.5 MT by FY28E.
• Higher volume and operational efficiencies to support EBITDA/tonne: SAIL delivered an adjusted EBITDA of ~₹10,725/tonne in Q1FY27, improving by ~₹2,400 QoQ, primarily led by cost efficiencies and stronger domestic steel realizations, with NSR increasing by ~₹5,100/tonne. While elevated coking coal prices and weaker long steel prices (down ~₹1,000- ₹2,000/tonne) could exert pressure on margins in Q2FY27, the impact is likely to be mitigated by higher sales volumes, inventory liquidation, and continued cost optimisation measures. Furthermore, increasing reliance on captive coking coal and operating leverage should improve the margin profile over the medium term. We therefore estimate EBITDA/tonne at ~₹8.3k in FY27E and further improving to ~₹9.1k in FY28E.
Rating and Target Price :
• We believe SAIL is well placed to benefit from favourable domestic steel demand, improved operating efficiencies, and ongoing capacity additions. Notably, the stock trades at an attractive valuation of ~5x FY28E EV/EBITDA, vs >=8x for most domestic steel peers. Considering the favourable risk-reward profile, we maintain our BUY rating with a target price of ₹225, based on 6x EV/EBITDA on FY28E.
