SAIL capacity expansion and cost optimisation underpin steel volume and margin growth

Investment View and Valuation

ICICI Direct Research's July 28, 2026 result update maintains a BUY rating on Steel Authority of India Ltd (SAIL). The broker believes SAIL is positioned to benefit from favourable domestic steel demand, improved operating efficiency and ongoing capacity additions.

SAIL's valuation is considered attractive at about 5x FY28E EV/EBITDA, compared with at least 8x for most domestic steel peers. The target price of Rs 225 is based on a 6x FY28E EV/EBITDA multiple.

Q1FY27 Financial Performance

SAIL reported healthy consolidated Q1FY27 performance. Total operating income increased 1 per cent year on year to Rs 26,246 crore, despite a 10 per cent year-on-year decline in steel sales volume to 4.16 million tonnes. Average blended realisation rose by about Rs 5,170 per tonne year on year to Rs 63,091 per tonne, supported by higher spot steel prices following the imposition of safeguard duties.

EBITDA increased 50 per cent year on year to Rs 4,153 crore, while EBITDA margin improved to 15.8 per cent, up 151 basis points sequentially. Adjusted EBITDA per tonne rose to Rs 10,725 from Rs 8,287 in Q4FY26. PAT was Rs 1,644 crore, compared with Rs 744 crore in Q1FY26 and Rs 1,835 crore in Q4FY26. Q1FY27 PAT included an exceptional Voluntary Retirement Scheme expense of Rs 144 crore.

Steel Realisations and Cost Outlook

Management indicated Q1FY27 blended net sales realisation of about Rs 57,100 per tonne, compared with Rs 52,000 per tonne in Q4FY26. It expects Q2FY27 realisation to decline sequentially by around Rs 1,000 to Rs 2,000 per tonne because of monsoon-related demand weakness, before improving after the monsoon.

• Long-product prices corrected by nearly Rs 3,000 per tonne during July 2026 but had begun recovering by Rs 500 to Rs 1,000 per tonne.
• Flat-steel prices declined by around Rs 1,000 per tonne.
• Imported coking-coal consumption cost rose to about Rs 21,300 per tonne in Q1FY27 from Rs 18,100 per tonne in Q4FY26.
• Management expects imported coking-coal cost to reduce by Rs 1,200 to Rs 1,500 per tonne sequentially in Q2FY27 as international prices soften.
• Imported coal accounts for around 85 per cent of SAIL's coking-coal requirements.

Production at the Tasra captive coal mine is expected to begin from December 2026. This should increase captive coal availability and lower procurement costs.

Capacity Expansion and Capital Expenditure

SAIL aims to expand crude steel capacity from around 21 MTPA to around 35 MTPA by FY31. The plan includes increasing IISCO Steel Plant capacity from 2.5 MTPA to 7 MTPA by FY29 through an investment of Rs 36,000 crore, along with debottlenecking and brownfield projects.

Management maintained FY27 capex guidance of Rs 15,000 crore. Annual spending is expected to exceed Rs 20,000 crore in FY28 and reach around Rs 25,000 crore to Rs 26,000 crore thereafter.

A new 0.8-0.9 MTPA TMT bar mill at Durgapur is expected in H2CY27. The facility should reduce semis production and improve value addition.

Earnings Outlook

ICICI Direct forecasts sales volume to grow at a 6 per cent CAGR from FY26 to FY28E, reaching around 22.5 MT. It estimates EBITDA per tonne of around Rs 8,327 in FY27E and Rs 9,118 in FY28E, supported by higher volumes, cost optimisation, growing captive-coal use and operating leverage.

Key Risks

• A sharp fall in domestic steel prices could pressure realisations and profitability.
• Capex overruns could affect the balance sheet.