Steel authority of India (SAIL) has returned more than 50 per cent from January 2023 when we recommended investors buy the share. We reasoned then that the narrow steel spreads (difference between steel realisations and cost of production), which were at their lowest at ₹1,746 EBITDA per tonne in Q2FY23, should recover from steel prices and lower costs. While steel realisations have only declined from those levels, coking coal costs have declined even faster resulting in an EBITDA per tonne of ₹5,950 in FY25.
We now recommend investors hold the stock. The steel realisations, post strong demand and regulatory support, continue to be stable at the lower range. The cost benefits from lower raw material costs have played out. Compared to peers delivering capacity expansion driven growth, SAIL’s expansion plans, while announced, must be monitored for execution along with debt on the balance sheet.
The company is trading at 6.7 times one-year forward EV/EBITDA. This is a 25 per cent premium to last five-year average for the company limiting the upside even from a valuation perspective.
Growth factors
Indian steel consumption has grown at 9 per cent CAGR in the last five years and is expected to sustain at 8-9 per cent growth in the medium term. This is tracking the GDP growth with a 1.2-1.3x multiplier effect. In the short term, demand from auto and infrastructure segments is expected to be strong following GST rationalisation on automobiles and cement prices, and lower rate of interest. SAIL has reported a strong volume growth of average 15 per cent year on year in the last three quarters. As a trading operation, the company also sells NMDC Steel (8 per cent volume contribution in Q1FY26), which has aided volume growth. .
The strong domestic volume demand was partially negated by cheaper steel imports from China, Vietnam and Japan. This, along with a weak international demand for steel, and tariff impact led to steel prices declining, as shown in the figures. In response, the Central government imposed a safeguard duty on steel imports which has stabilised prices domestically. The Chinese government is also reportedly trimming its steel overcapacity from 1,000 million tonnes per annum (mtpa) which should support prices. The impact of safeguard duties and spike in demand may support steel prices, which continued to be lacklustre even in Q2FY26 going by spot prices of steel continuing to hover around 50,000 per tonne.
Despite weak realisations, declining coal costs have aided SAIL regain margins. The coking coal costs, which peaked at $600 per tonne, have declined to $180 per tonne recently and are expected to stabilise in that range. This along with volume gains adding to operating leverage has aided expansion in EBITDA per ton.
Expansion and balance sheet
SAIL has debt of ₹36,934 crore as on March 2025 and net debt to EBITDA of 3.3 times. The company has been gradually repaying the high debt, but the company is also gearing up for a large expansion.
The company has a current capacity of 20 mtpa. SAIL intends to add 15 mtpa by 2030-31 through brownfield expansion and debottlenecking of existing facilities. The project cost is tentatively estimated around ₹1 lakh crore compared to its market cap of ₹54,000 crore. The large plan will be executed phase wise. In the near term by FY28, SAIL intends to add 4.5 mtpa through new capex (4 mtpa) and through de-bottlenecking at its IISCO plant at a cost of ₹35,000 crore. The company has planned a capex of ₹7,500 crore for FY26, which will gradually increase in FY28 as well. The company has not detailed the financial plan for the overall expansion but investors will have to monitor debt levels for the company.
With Indian steel demand increasing by 8-12 mtpa per annum, the overall demand including the rapidly expanding capacities of peers and expansion plans of SAIL, the additional capacity should find its market domestically. But SAIL with a lower EBITDA margin compared to peers (11 per cent in FY25 compared to 14 per cent average for peers), an execution track record not as strong as peers and with higher existing debt on balance sheet, the expansion plan will have to be closely monitored for earnings potential.
The company has reported a revenue decline of 1 per cent CAGR in the last three years (FY23-25) to ₹1.02 lakh crore in FY25, but a PAT CAGR of 4.4 per cent to ₹2,300 crore. The lower cost of coal aided profitability but also impacts steel price along with excessive imports and weak international steel prices. The safeguard duties should arrest the decline and possibly renew price growth especially considering the favourable macro support from GST rationalisation and lower interest rate outlook.
Published on October 18, 2025
