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Lower input costs drive earnings beat

* SAIL reported a 3QFY25 revenue of INR245b (+5% YoY and +6% QoQ), in line with our estimate of INR257b. The growth was primarily led by better volume, which was partially offset by weak realization.

* Crude steel production stood at 4.6mt, down 3% YoY/QoQ. Sales volume grew 17% YoY and 8% QoQ to 4.4mt. The ASP stood at INR55,282/t, -10% YoY and -2% QoQ on account of weak domestic pricing during the quarter.

* EBITDA declined 5% YoY to INR20b (vs. our est. of INR11b) due to weak ASP, while it rose 59% QoQ driven by better volume and lower input costs. EBITDA/t stood at INR4,582 (vs. our est. of INR2,278), fueled by lower-thanexpected costs. Adj. PAT was INR1b vs. our estimated loss of INR1.7b for 3Q.

* During 9MFY25, SAIL’s revenue declined 5% YoY to INR715b. EBITDA dipped 7% YoY to INR55b, and APAT decreased 94% YoY to INR0.6b.

Highlights from the management commentary

* In 3QFY25, avg. landed coking coal costs stood at INR19,200/t vs. INR20,600/t in 2QFY25. For 4QFY25, the management expects coking coal costs to decline further by INR1,000/t QoQ.

* In Jan’25, the average realization for long steel was INR51,500/t, and flat was INR48,400/t. Management expects an upward trend in prices in the coming months, particularly in the flats segment.

* In Phase I, three plants (IISCO-Greenfield, Bokaro, and Durgapur) have received Stage-1 approvals, and SAIL will be adding ~7.5mtpa with a capex outlay of INR550-560b.

* The company expects to achieve a sales volume of 17.5mt for FY25.

* SAIL plans to add a new TMT mill capacity of 1mtpa at Durgapur (in the next 3- 4 years), which will reduce the semi-steel share in the future.

Valuation and view

* SAIL’s 3QFY25 performance has been strong, driven by lower costs despite weak realizations. We raise our FY25 estimates to incorporate the strong performance.

* While we expect domestic steel demand to grow fueled by infra investments and government policies, global uncertainties such as tariffs, weak global demand/price, and geopolitical risks could have an adverse impact. Considering these factors, we trim our FY26 revenue and EBITDA estimates by 15% and 35%, respectively, while we largely retain our FY27 estimates.

* SAIL plans to undertake 15mtpa expansions to increase its capacity to 35mt. As the capex intensity picks up, it would limit the deleveraging efforts ahead. At CMP, SAIL trades at 5.4x EV/EBITDA on FY27E and is fully priced at current levels. We reiterate our Neutral rating on the stock with a revised TP of INR115 (premised on 5.5x EV/EBITDA on FY27E).

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