Reduce Steel Authority of India target of Rs 104 Prabhudas Lilladher

Prabhudas Lilladher recommended reduce rating on Steel Authority of India with a target price of Rs 104 in its research report dated November 09, 2024.

Broker Research

November 11, 2024 / 15:28 IST

Reduce

26 Aug, 2025 12:21

Volume

Todays L/H

Prabhudas Lilladher's research report on Steel Authority of India

SAIL continued to deliver weak operating performance in a seasonally weak quarter on account of 14% YoY volume decline and lower steel pricing. Despite having ~1.9mt finished steel inventory, volume decline was disappointing. Average NSR declined 6% QoQ due to sharp fall in steel pricing since Jun’24. Long product prices have recovered since end Q2FY25; however, average NSR for Q3FY25 would be lower sequentially as HRC pricing is still weak. As expected, the management has reduced its sales guidance to 18mt from 19.2mt given in Q1FY25. Coking coal cost is expected to decline by ~Rs1,600/t in Q3FY25, and as domestic demand improves, NSR is expected to inch up. SAIL maintained lower capex guidance for FY25 at Rs60bn, which is largely sustenance and debottlenecking capex. Growth capex of Rs370bn for 4mtpa capacity addition at IISCO would start from FY26; a few technical packages have been tendered out, and by mid FY26, the management would decide on vendors. SAIL is targeting to reduce debt by Rs45-50bn by end-FY25; however, considering the planned capacity expansion projects, debt is likely to go up eventually.

Outlook

We expect SAIL to remain a play on steel prices as a) inability to liquidate inventory during tough market conditions, b) its medium-term volume growth would depend upon successful execution of planned capex by FY28E, and c) higher capex can deteriorate balance sheet unless there is timely execution. We cut our FY26/27E EBITDA estimates by ~10% each on account of lower steel pricing and volumes. At CMP, the stock is trading at an EV of 6.4x/5.5x FY26/FY27E EBITDA. Maintain ‘Reduce’ with revised TP of Rs104 (Rs131 earlier) giving 5.5x Sep’26E EV/EBITDA.

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