Buy Sambhv Steel Tubes Ltd For Target Rs.210 by Choice Institutional Equities
Investment View & Target Price: INR 210 (37.8% Upside)
Volume-led Q2FY27; operating leverage doubles PAT: Value-added product (VAP) volumes rose 26.8% YoY (12.3% QoQ) to 1,13,591 MT. The growth was led by Pre-galvanised Coils & Pipes (+59.0% YoY to 32,126 MT) and Structural Pipes & Tubes (+16.0% YoY to 67,020 MT). Operating EBITDA/t stood at INR 8,233 (INR 8,888/t excluding sponge iron). This is lower than ~INR 9,350/t in Q1FY27, as higher raw material cost cut gross margin by 325 bps QoQ to 25.7%. Tighter control of other expenses (8.7% of sales vs 11.5% in Q2FY26) still drove a 170 bps YoY expansion in EBITDA margin to 12.1%.
Kesda on track; seamless foray approved:
Kesda Phase I (0.36 MMTPA stainless steel, capex INR 8.1 Bn) remains on track for Q4FY27 commissioning. Hot rolling mill equipment erection is ~60% complete, and steel melting shop civil work is 60–80% complete. The Board also approved a 14,400 MTPA greenfield plant for stainless steel seamless pipes & tubes (INR 1.48 Bn, of which INR 1.0 Bn is debt), to be built through its wholly-owned subsidiary and targeted for March 2028 completion, adding the highest-margin product line.
Q2FY27 operational highlights
Record revenue: SAMBHV delivered its highest-ever quarterly revenue. Consolidated revenue grew 44.1% YoY (14.2% QoQ) to INR 8,360 Mn on strong VAP volumes.
Margin expansion: EBITDA rose 67.7% YoY to INR 1,010 Mn, with margin up 170 bps YoY to 12.1%. Margin fell 91 bps QoQ as raw material cost went up.
Strong earnings: PAT nearly doubled (+99.2% YoY) to INR 609 Mn (7.3% margin), helped by operating leverage, despite a 30.2% YoY increase in finance cost to INR 108 Mn.
View and Valuation:
We reiterate our ‘BUY’ rating and retain our TP at INR 210/share, implying an upside of 37.8% from the CMP of INR 152.2. Our TP is based on 10x TTM H1FY29E consolidated EV/EBITDA. Strong H1 operating cash flow of INR 3.1 Bn (vs INR 0.2 Bn in H1FY26) funded a large part of H1 capex of INR 4.8 Bn, and net debt stays at a comfortable ~1.3x operating TTM EBITDA. Timely commissioning of Kesda remains the key upside trigger.
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SEBI Registration no.: INZ 000160131
