Sambhv Steel Tubes targets stainless-steel-led earnings growth through Kesda capacity expansion

Investment View and Recommendation

Choice Institutional Equities initiated coverage on Sambhv Steel Tubes Ltd on September 29, 2026, with a BUY rating. The broker views Sambhv as evolving from an integrated mild-steel and ERW pipe manufacturer into a higher-value steel-products platform, supported by backward integration, coated-steel products and stainless steel.

Sambhv operates an integrated chain spanning sponge iron, billets and blooms, hot-rolled coils, cold-rolled and pre-galvanised products, ERW pipes and stainless-steel coils. Choice believes this integration improves control over raw-material sourcing, quality and operating costs relative to more dependent pipe manufacturers.

Capacity Expansion and Growth Outlook

The main earnings catalyst is Rs 20,500 million of capex, which is expected to increase finished capacity from 508 kt to 1,730 kt. The key project is the 360 ktpa Kesda stainless-steel HRAP and CRBA coil facility, with Phase I commissioning targeted for Q4FY27.

Choice expects volumes to grow at a 33.2 per cent CAGR from FY26 to FY29E, reaching 937 kt. Its FY28E and FY29E assumptions use only 49 to 54 per cent blended capacity utilisation, compared with 78 per cent in FY26, leaving material capacity headroom beyond the explicit forecast period.

• The 180 ktpa ERW Sarora unit is expected to support volume growth.
• Stainless-steel CRM capacity is expected to double to 116 ktpa.
• Higher contribution from coated products should support the product mix and growth outlook.

Management has guided for 10 to 15 per cent volume growth in FY27 from the existing business, providing a bridge before Kesda ramps up. Management guides for FY27 blended EBITDA per tonne of Rs 7,500 to Rs 8,500 and expects Kesda stainless-steel EBITDA per tonne of Rs 15,000 to Rs 16,000 at full utilisation.

Current production includes around 1,200 to 1,300 tonnes per month of 300-series stainless-steel coils and 4,700 to 4,800 tonnes per month of 200-series coils. Choice sees the increase in 300-series stainless-steel output as important for moving towards higher-value applications.

Captive power is another cost advantage. Management indicates a cost of around Rs 4 to Rs 5 per unit, compared with Rs 8 to Rs 9 per unit from the grid.

Financial Performance and Forecasts

Sambhv reported FY26 revenue of Rs 24,133 million, EBITDA of Rs 2,763 million and reported PAT of Rs 1,422 million. Choice forecasts continued growth through FY29E, driven primarily by capacity ramp-up, operating leverage and a richer product mix rather than steel-price inflation.

The broker forecasts FY29E reported PAT of Rs 4,481 million and ROE of 24.6 per cent. EBITDA margin is expected to improve from 11.4 per cent in FY26 to 12.0 per cent in FY29E.

Valuation

Choice values Sambhv at 10 times trailing twelve-month H1FY29E EV/EBITDA of Rs 7,560 million and derives a target price of Rs 210 per share, implying 36.6 per cent upside from the Rs 154 CMP.

The selected multiple is below the stock's one-year-forward EV/EBITDA average since listing of 11.0 times, reflecting no assumed re-rating. The broker notes that the target depends on EBITDA growing 29 per cent from FY28E as new capacity ramps.

The CMP-based valuation metrics are stated after considering debt raising.

Funding, Cash Flow and Key Risks

Choice expects cumulative FY27E to FY29E operating cash flow of Rs 11,900 million to fund around 58 per cent of capex. The balance is expected to be supported by Rs 10,800 million of net borrowings and around Rs 1,000 million of equity.

Management expects peak debt of around Rs 8,000 million of long-term debt plus Rs 2,000 million to Rs 3,000 million of working-capital debt.

Key risks include:

• Delayed commissioning of Kesda.
• Stainless-steel spreads remaining below the targeted Rs 15,000 to Rs 16,000 per tonne.
• Low-priced hot-rolled coil imports pressuring pipe prices.
• ERW price competition.
• Steel-price volatility.
• Higher-than-planned borrowings.

Timely Kesda execution and a rapid earnings ramp-up are therefore both the principal upside trigger and the key monitorable.