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SAIL reported standalone adj EBITDA of Rs27.5bn, down 12.8% QoQ, missing the street’s expectation of Rs33.9bn by 18.8%. Blended NSR increased by Rs1,600/t QoQ; however, the gains were offset by a one-time inventory valuation loss of Rs9.5bn, owing to lower coking coal price during the quarter. The management expects Q2 performance to be similar to Q1, with July's seasonal price weakness likely being offset by an expected rebound in Aug– Sep. We reiterate BUY, with the view that the company could achieve EBITDA/t of Rs8,000 in H2FY26, from Rs6,000 currently. Volumes are expected to rise as well, resulting in reasonable earnings upside potential.

One-off hit masks NSR gains SAIL reported standalone adj EBITDA of Rs27.5bn, down 12.8% sequentially, missing the street’s expectation of Rs33.9bn by 18.8%. Adjusted EBITDA margin increased merely by Rs242/t to Rs6,048/t in Q1 vs Rs5,806/t in Q4FY25 which is a miss vs the market’s expectation despite anticipated benefits from price hikes during the quarter. Breaking down the numbers into volumes, price, and cost – there was a 3% miss on volumes vs expectations; blended NSR improved by Rs1,600/t sequentially (a tad below the guidance of ~Rs2,300/t) to Rs51,700 and was offset by a one-time inventory valuation impact of Rs9.5bn, primarily because of the lower imported coking coal price during the quarter which came as a surprise. Sales volumes stood at 4.6mt in Q1 vs 5.3mt in Q4FY25. Crude steel production stood at 4.9mt (down 4.4% QoQ)

Key takeaways from the conference call Operational: SAIL targets sales volume of 18.5mt in FY26 (excluding NMDC Steel offtake). Inventory stood at 1.7mt of saleable steel and 1.3mt of in-process stock, valued at Q1 cost with no further downside expected. Coking coal inventory is maintained at 25–30 days. Financials: Debt reduced by Rs11bn to Rs363bn in Q1. Capex for FY26 is guided at Rs75bn, with FY27 expected to see a sharp rise, led by the Rs360bn IISCO expansion. Railway pricing for Q1 was based on the FY24 rate, with the FY26 provisional rate at Rs74,000/t. However, the management does not expect any further benefit this year, as it has already been realized. Pricing and cost: Blended NSR rose to Rs51,700/t in Q1 (vs Rs50,100 in Q4). Imported coking coal cost fell to Rs17,600/t, from Rs18,500, improving blended cost by ~Rs600/t. Outlook: Q2 is expected to remain in line with Q1. Seasonal weakness in July prices may be offset by an expected rebound in Aug–Sep. The one-off impact of inventories is unlikely to recur, and the lower cost base should work favorably for spreads. IISCO tendering is underway, with major spending expected from FY27

Reiterate BUY We reiterate BUY on SAIL, with the view that the company could achieve EBITDA/tonne of Rs8,000 in H2FY26, from the current Rs6,000. Volumes are expected to rise as well, resulting in reasonable earnings upside potential.

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