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Results Synopsis

SAIL's Q2FY25 performance was below the consensus expectations, primarily driven by lower export sales volumes and falling realizations on a QoQ basis, which offset the declines in imported coking coal prices. Net revenue from operations stood at Rs 246,746 mn (which included Rs 16,369.4 mn towards rail price revision for FY22-23), up 3% QoQ and down 17% YoY. Adjusted EBITDA stood at Rs 12,673 mn down 43% QoQ and 67% YoY.

Debottlenecking to be the focus while the 35 mtpa target for CY2031 remains as-is

Over the course of the next couple of years, SAIL shall be focusing on debottlenecking activities at its current facilities while the plans for Rs 1,000,000 mn are finalized to take its capacities to ~35.0 mtpa by CY2031 (currently 19.10 mtpa). The debottlenecking activities are expected to provide ~1.5 to 2.5 mt of additional volumes over the course of the next two fiscals thereby having marginal volume and profitability growth FY25-27E.

Valuation and View

We project Revenue/EBITDA growth for SAIL at a CAGR of 7%/12%, over FY25-27E majorly coming in from the additional volumes through debottlenecking and a favourable macro-environment with improving realizations and a stabilizing coststructure.

We value SAIL at 6x FY27E EV/EBITDA to arrive at our unchanged target price of Rs 112/sh.

Result Highlights

Standalone performance

* Revenue from operations for the quarter stood at Rs 246,747 mn (vs our estimate of Rs 228,932 mn) up 3% QoQ and down 17% YoY.

* Absolute EBITDA for the quarter stood at Rs 29,043 mn (vs our estimate of Rs 19,267 mn). EBITDA margins stood at 11.8% for the quarter vs 9.2% in Q1FY25 and 13% in Q2FY24.

* Net profit for the quarter stood at Rs 8,335 mn (vs our estimate of Rs 3,379 mn) down 33% YoY.

* As per the terms of sales with certain Government agencies, the invoicing to these agencies is done at provisional prices, till a final price is subsequently agreed. The revenue recognized on the provisional prices basis for the quarter stood at Rs 38,505.9 mn. The amount also includes Rs 16,369.4 mn towards rail price revision for FY22-23.

* As of 30th September 2024, the Company is carrying sub-grade iron-ore fines inventory of 40.47 MT (as at 31st March 2024: 40.88 Mt) valuing Rs 3894.77 crore (as at 31st March 2024 valuing Rs 3932.35 crore) which includes 38.57 MT valued at Rs 3733.47 crore classified as non-current inventory at its various mines.

* An amount of Rs 1826.16 crore demanded by the water resources department (including interest/penalty) has been treated by the company as contingent liability as on 30th September 2024 as the decision on the acceptance of the appeal was pending before the Division Bench of Hon'ble Jharkhand-High Court.

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