Hold Steel Authority of India; target of Rs 133: Prabhudas Lilladher

Prabhudas Lilladher's research report on Steel Authority of India

SAIL delivered weak operating performance in Q1FY26 due to inventory revaluation loss in RM and higher other expenses. Volumes grew 4% YoY (incl NSL’s low contribution volumes, total volume growth was 13% YoY). Higher royalties and other expenses negated the benefit of higher steel prices. The average NSR grew 5% QoQ, aided by better flat and long product prices, driven by the implementation of safeguard duty and higher GoI capex. Blended EBITDA/t was weak at Rs5,695/t adjusting for the prior period rail price revision impact of Rs 1.73bn. We expect even weaker Q2 as domestic prices have declined since early June on monsoon led weakness in demand. SAIL is undertaking largely sustenance and debottlenecking capex in the near term and actual growth capex cash outflow would start from FY27. Tendering process at ISP is in progress and mgmt. expects ordering by Q3. ISP’s 0.5mtpa debottlenecking expansion is expected by FY28E. We expect SAIL to remain a play on steel prices as long-term volume growth would depend upon successful execution of planned capex. We tweak our FY26/27E EBITDA estimates by ~4/- 1% assuming higher NSL contribution.

Outlook

At CMP, the stock is trading at an EV of 6.4x/5.3x FY26/FY27E EBITDA. Maintain ‘Hold’ with revised TP of Rs133 (Rs136 earlier) giving 5.5x Mar’27E EV/EBITDA.