Hold Steel Authority of India; target of Rs 143: Prabhudas Lilladher

Prabhudas Lilladher's research report on Steel Authority of India

SAIL delivered a strong operating performance in Q2FY26, driven by 12% YoY volume growth (ex. NMDC Steel trading volumes of 0.3mt) and sale of byproducts worth Rs11.4bn. Resultant, average NSR declined just 4% QoQ despite sharper fall in steel prices during Q2FY26. Despite monsoon quarter, most of the costs were well constrained leading to EBITDA/t of Rs5,142/t. Mgmt. expects by-product sales to continue in H2FY26 while steel prices are expected to improve on better demand. SAIL is undertaking largely sustenance and debottlenecking capex in the near term and actual growth capex cash outflow would start from mid-FY27. Major order placement for 4.5mtpa IISCO project has been completed while rest of the orders would be completed within next two months. Debottlenecking projects at DSP, RSP and BSP are also on track. We expect SAIL to remain a play on steel prices as long-term volume growth would depend upon successful execution of planned capex; however, it has delivered superior volume growth with existing inventories (1.9mt finished goods inventory). We increase our FY26/27E EBITDA estimates by ~5/6% assuming higher volumes.

Outlook

At CMP, the stock is trading at an EV of 5.3x/5.4x FY27/FY28E EBITDA. Maintain ‘Hold’ with revised TP of Rs143 (Rs139 earlier) giving 5.5x Sep’27E EV/EBITDA.

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