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Higher steel pricing drive Q4; stepped up capex

SAIL delivered strong operating performance in Q4FY26 led by sharp improvement in NSR amid rising domestic steel prices. While reported volumes remained flattish YoY at 5.32mt due to lower NSL trading volumes, own steel sales volume grew 5% YoY. Avg NSR improved 9% QoQ to INR57,898/t as longs pricing had improved from early Jan’26 while flats followed later. Despite increased coking coal costs; lower employee costs, better operational efficiencies and inventory liquidation supported EBITDA/t at INR8,279/t. Mgmt indicated April-May NSR for longs at INR57,600-57,800/t and flats at INR56,000-56,700/t, implying ~INR4,000/t increase over Q4FY26 levels. However, imported coking coal costs have also increased sharply from INR18,200/t in Q4FY26 to INR21,000-21,800/t in Apr-May. Further, Mgmt has guided for FY27 sales volumes of 22.5mt (including ~0.6mt from RINL sales), aided by debottlenecking and operational improvements.

SAIL has increased its capex guidance with major expansion activities commencing at ISP, while Bokaro and Bhilai projects are also expected to gather pace over FY28/29E. However, long-term volume growth remains dependent on timely execution as major capacities are now expected only from FY31 onward, while any delay could lead to further market share loss amid aggressive capacity additions by private steel players. Further, rising capex intensity over the next 3-4 years would require current steel pricing to sustain for longer term to keep balance sheet stable. Although imported coking coal and other input costs have risen sharply due to geopolitical disruptions, recent steel price hikes should largely offset the cost increase and support margins over the next few quarters. As China is supporting steel pricing by curtailing production/exports, we expect domestic prices to remain elevated as India is trading at discount on import parity basis. However, rising coking coal and impending demand destruction in near term on higher crude remains a risk. We raise our FY27/28E EBITDA estimates by ~20% on higher steel prices & lower opex. At CMP, the stock is trading at an EV of 5.4x/5.2x FY27/28E EBITDA. Maintain ‘Accumulate’ with revised TP of Rs209 (Rs176 earlier) giving same 5.5x Mar’28E EV/EBITDA.

Strong NSR led to increase in revenue:

standalone revenue grew 7% YoY to INR308bn (PLe INR318bn) led by sharp increase in NSR on higher steel prices during the quarter. Avg realization grew 9% QoQ to INR57,898/t (+8% YoY; vs PLe INR57,157/t) while volumes were flattish YoY at 5.32mt (+3% QoQ; PLe 5.57mt). This includes trading volume of 0.1mt from NSL, hence SAIL’s volume grew 5% YoY to 5.22mt (+9% QoQ). Saleable steel production volumes grew 5% YoY to 4.94mt (+6% QoQ vs PLe of 5.19mt).

Lower staff costs and higher NSR led to sharp growth in EBITDA: EBITDA increased 54% YoY to INR44bn (+92% QoQ vs PLe INR40.3bn) on higher NSR. RM cost/t increased 2% YoY to INR28,084/t, while staff costs declined 23% YoY to INR5,403/t on reduction in manpower by 3,407 YoY (860 QoQ). Other expenses increased 11% YoY to INR16,525/t. Resultantly, EBITDA/t increased 55% YoY to INR8,279/t (PLe INR7,243/t). Reported PAT surged to INR16.8bn, up 43% YoY (3.8x QoQ vs PLe INR17.2bn) aided by inventory liquidation and cost optimization. Exceptional item included INR1.13bn relating to increase in gratuity limit and INR2.16bn relating to net impact of adjustment of balances pertaining to earlier years’ DVC electricity tariff dispute.

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