Buy SAIL Ltd for the Target Rs. 200 by Emkay Global Financial Services Ltd
SAIL reported stronger-than-expected Q4 results. Adjusted EBITDA at Rs44bn beat consensus by 10.6%, driven by higher realizations and operating leverage. EBITDA/t surged to Rs8,280 vs Rs4,465 in Q3. Strong sales and production volume growth reflected the company’s solid operational execution. The management guided for FY27 sales volumes at 22.5mt (including for RINL). However, we believe the implied ramp-up in core volumes appears optimistic in the absence of major capacity additions beyond debottlenecking initiatives. While lower employee headcount should support costs, upcoming wage revisions are likely to offset part of the savings from Q4FY27 onward. With steel prices remaining firm, we expect further improvement in EBITDA/t to Rs8,750- 9,000 in Q1FY27 and, hence, maintain BUY and TP of Rs200.
Strong quarter on supportive realizations
SAIL reported stronger-than-street-expected Q4 results. Adjusted EBITDA at Rs44bn materially beat street expectation by 10.6%, while being broadly in line with our estimate. EBITDA increased 91.7% QoQ, driven by strong realizations during the quarter and aided by higher operating leverage. Adjusted EBITDA/t increased significantly during the quarter to Rs8,280, ahead of market expectation of Rs7,000-7,500 and significantly higher than Rs4,465 reported in Q3. Higher volumes further supported performance, with sales up 3.3% QoQ to 5.3mt and production up 4.8% QoQ to 5.1mt, highlighting solid operational execution. Net debt declined by ~Rs79bn in FY26 on strong cash generation.
Volume guidance optimistic; wage revision to weigh on cost savings
SAIL reported FY26 sales volumes of 19.9mt, including 1.1mt from NSL. Adjusting for NSL, core sales volumes stood at 18.8mt. The management has guided for FY27 sales volumes of 22.5mt, including 0.6-0.7mt from RINL, while NSL volumes will no longer be consolidated as the entity transitions to independent sales. Given the absence of any major capacity addition in FY27, apart from incremental debottlenecking initiatives, we believe the implied ramp-up in core volumes from 18.8mt in FY26 to 22mt (ex-RINL) in FY27 appears optimistic. We model crude steel production at 20.5/21.1mt and sales volumes at 20.9/21.5mt (including for RINL) for FY27/FY28E, respectively. Employee headcount declined by 3,407 in FY26, contributing to a 2.3% YoY reduction in employee costs. While we expect a further reduction of 2,000 employees, we believe employee expenses will increase due to the impact of wage revisions, from Q4FY27 onward.
Q1FY27 EBITDA/t likely to improve further; maintain BUY
We expect the market to react positively to the results, particularly considering the continued strength in steel pricing, which is likely to further improve EBITDA/t from Rs8,280 in Q4 to Rs8,750-9,000 in Q1FY27. As we build in the volumes and capex guidance from the management, our earnings estimates are broadly unchanged. We maintain BUY and TP of Rs200.
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