SAIL Q2 Review - Earnings Beat On Provisional Rail Price Revision; Growth Plan Intact: Systematix

Systematix Research Report

Near-term earnings are likely to increase led by softening raw material prices partially offset by continued weakness in steel prices. Steel Authority of India Ltd. has depleted most of its high-cost coking coal inventory and is likely to see greater cost benefits from lower coking prices from Q3 FY25 onward.

We raise our FY25E estimated Ebitda by 25% to Rs 110.9 billion (flat YoY) to factor in the impact of revenue recognized towards provisional rail price revision. We alter our FY26E Ebitda lower by 2% and introduce FY27 estimates.

We expect a gradual recovery in Ebitda margins over the next few quarters led by-

1. closing saleable steel inventory of 1.98mt as of Q2 FY25,

2. reduction in share of semis in the product mix as Bokaro hot strip mill is reinstated after a maintenance shutdown, and

3. higher sales of long products to its key customer Indian Railways.

SAIL is focused on debottlenecking and modernization of existing plants to enable 2 mt-3 mt incremental volumes over the next two to three years before, which will subsequently ramp up as SAIL commences larger capacity expansions to take the capacity from 20 mt to 35 mt by 2031.

SAIL’s increased debt before the commencement of growth capex is likely to drag its valuations as the company expects debt to peak near 2028-29. We value SAIL at six times FY27E EV/Ebitda with a revised target price of Rs 129/share (Rs 131/share earlier), implying a 9% upside from current market price. Maintain Hold.

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