IGI Logo

Weak demand hurts volume

In-line revenue; EBITDA ahead of our expectations

Steel Authority of India (SAIL IN) reported a mixed Q3, with net sales broadly in line but EBITDA better-than-expected, primarily led by realization surpassing expectation and operating cost lower-than-anticipated. Net sales declined ~7% YoY and ~21% QoQ to ~INR 233bn, mostly in line with our estimates of ~INR 231bn. However, EBITDA was up ~3% YoY but down ~45% QoQ to ~INR 21bn, above our estimates of ~INR 11bn. Finance cost fell ~4% YoY but rose ~1% QoQ to ~INR 6bn. Depreciation grew ~8% YoY but was flat QoQ at ~INR 13bn. Adjusted PAT was up ~9% YoY but dropped ~82% QoQ to ~INR 2.8bn.       

EBITDA/tonne up ~12% YoY but down ~31% QoQ

Sales volume dropped ~8% YoY and ~20% QoQ to 3.8mn tonnes, in line with our estimates. However, this negative impact was offset by better realization and lower-than-expected operating cost. Realization was up ~2% YoY but was down ~2% QoQ to INR 61,274/tonne, ~1% above our estimates. Operating cost increased ~1% YoY and ~3% QoQ to INR 55,657/tonne, ~4% below our estimates, driven by lower power & fuel cost, employee cost and stores & spares cost. Thus, EBITDA/tonne rose ~12% YoY but fell ~31% QoQ to INR 5,617 versus INR 2,833 estimated.

Valuation: Downgrade to Sell; new TP at INR 108   

Given the lag impact of high coking coal price and soft steel prices, margin may come under pressure. Furthermore, the recent suspension of key officers in the company may slow down decision making process. Absence of any major capacity addition in the next two years may result in SAIL’s underperformance versus its peers on the volume front. While we largely retain FY25E-26E EBITDA estimate, we cut it ~10% for FY24E, to factor in weak volume in Q3FY24.      

As we roll over to December 2025E from September 2025E, we raise our TP to INR 108 from INR 104, on 4.5x (unchanged) December 2025E EV/EBITDA. As SAIL is up ~40% since the release of our report ‘Railway arrears lift profitability’, dated 17 November 2023, we revise our rating to Sell from Accumulate.

Please refer disclaimer at Report
SEBI Registration number is INH000000933