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SAIL reported an in-line quarter, with adjusted EBITDA of Rs41.5bn, which was 9.1% below our estimate due to weaker-than-expected sales volumes, while it was in line with street estimate. Despite the volume decline, EBITDA remained resilient, aided by improvement in NSRs, while EBITDA/t improved to Rs9,974. We expect pricing strength and ongoing cost-efficiency initiatives to support gradual margin expansion. However, weak 1Q performance raises the execution risk on FY27 volume guidance, with earnings likely to remain realization-led in the near term. Additionally, the 20% correction in rebar prices and SAIL's high exposure to long products could weigh on 2QFY27 earnings. Hence, we cut our TP by 5% to Rs190 (from Rs200) while retaining BUY, supported by improving operational efficiencies and attractive medium-term earnings potential.

In-line quarter

SAIL reported broadly in-line 1QFY27 results. Adjusted EBITDA of Rs41.5bn was 9.1% below our estimate but broadly in line with street expectation, with the miss primarily driven by lower sales volumes of 4.16mt (vs our estimate of 4.7mt), reflecting weakerthan-expected dispatches. Despite sales volumes declining 21.8% qoq and 8.5% yoy, absolute EBITDA remained resilient, supported by a ~Rs4,600/t qoq improvement in NSRs. However, the realization benefit lagged peers’ due to SAIL's relatively higher exposure to semi-finished products, where pricing remained largely flat during the quarter. EBITDA/t improved by ~Rs1,700 qoq to Rs9,974, broadly in line with our estimate, while PAT stood at Rs16.4bn, down 2.6% qoq but up 139% yoy.

Margin expansion intact; volume execution remains key

While the strong pricing environment and continued cost-efficiency initiatives should support absolute EBITDA growth and drive a gradual improvement in EBITDA spreads over the medium term to ~Rs7,500/t, we remain cautious on SAIL's volume outlook. The company guided healthy volume growth for FY27 during the 4QFY26 earnings call; however, the subdued performance in 1QFY27 raises the execution hurdle for the remainder of the year. Although seasonally stronger demand and higher capacity utilization in the coming quarters could aid recovery, achieving the full-year guidance now appears challenging. Consequently, we expect earnings improvement in the near term to be driven largely by better realizations and operational efficiencies rather than volume growth. That said, we remain constructive on the medium-term margin trajectory but cautious on SAIL's structural volume growth until the next leg of major capacity expansion is commissioned in FY29-30

Rebar price correction to weigh on 2QFY27 earnings

We expect the market to take the results largely neutrally, as EBITDA spread expansion remained modest despite a favorable pricing environment in 1QFY27. With the company entering a seasonally weaker quarter and rebar prices correcting ~20% to ~Rs48,000/t, SAIL's high exposure to long products could weigh on 2QFY27 earnings. Accordingly, we cut our TP to Rs190 (from Rs200) while maintaining BUY, supported by its improving cost structure and medium-term earnings potential.

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