Steel Authority of India’s Q1 margins surge as cost savings and iron ore sales build

Investment View and Target Price

In its July 29, 2026 Q1FY27 result update on Steel Authority of India (SAIL), PL Research retained its Accumulate recommendation while reducing the target price to Rs 185 from Rs 203. The broker viewed the quarter as operationally strong, with higher steel pricing supporting profitability despite production disruption caused by the advancement of scheduled capital repairs at Bokaro, IISCO and Durgapur.

PL Research expects production normalisation, lower coking-coal costs and a recovery in domestic demand in H2FY27 to support profitability. However, timely execution of SAIL's expansion projects remains the key consideration, as the company remains a pure play on steel pricing until then. Higher capital expenditure could also increase leverage.

Q1FY27 Financial Performance

SAIL's standalone Q1FY27 revenue rose 3 per cent year on year to Rs 266 billion, below PL Research's Rs 277.8 billion estimate. Reported revenue was adjusted for the Railways' downward revision of prior-period pricing, which had an effective impact of Rs 3.09 billion.

Sales volume declined 9 per cent year on year to 4.16 million tonnes and saleable-steel production fell 7 per cent to 4.52 million tonnes because of the advanced maintenance work. Nevertheless, adjusted average realisation rose 10.3 per cent quarter on quarter and 13 per cent year on year to Rs 63,833 per tonne, exceeding the broker's expectation of Rs 62,530 per tonne. The increase was driven by higher HRC prices and the lower volume base.

Adjusted EBITDA grew 72 per cent year on year to Rs 44.6 billion, 10 per cent above PL Research's Rs 41.1 billion estimate. EBITDA margin expanded to 16.8 per cent from 10.1 per cent a year earlier, while adjusted EBITDA per tonne rose 88 per cent year on year to Rs 10,724, ahead of the broker's Rs 9,252 per tonne expectation.

Raw-material cost per tonne declined 4 per cent year on year to Rs 26,009. Staff cost per tonne increased 7 per cent to Rs 6,505, while other expenses rose 16 per cent to Rs 20,039 per tonne because maintenance was brought forward. SAIL recognised Rs 1.44 billion of exceptional voluntary-retirement compensation. Reported PAT increased 139 per cent year on year to Rs 16.3 billion, supported by lower taxes.

Operating Outlook and Management Commentary

Management retained FY27 sales-volume guidance of 22 million tonnes and plans to liquidate inventory in H2FY27 to improve sales volumes and reduce working-capital borrowings. Q1FY27 blended NSR was Rs 57,100 per tonne, compared with Rs 52,000 in Q4FY26. However, July blended NSR moderated to Rs 55,600 per tonne as monsoon weakness reduced flat-steel prices by about Rs 1,000 per tonne and long-steel prices by about Rs 2,000 per tonne.

Management expects long-steel prices to recover by Rs 500 to Rs 1,000 per tonne as demand improves. Imported coking-coal cost increased to Rs 21,300 per tonne in Q1FY27 from Rs 18,100 in Q4FY26, but management expects costs to decline by about Rs 1,000 per tonne in each of August and September 2026.

• Management targets FY27 cost savings of Rs 2,000 to Rs 3,000 per tonne through operational improvements and greater use of captive resources.
• The IISCO expansion, expected in FY28/FY29, is expected to reduce variable cost by Rs 3,000 to Rs 4,000 per tonne. After higher fixed costs, net savings are expected to be about Rs 2,000 per tonne.
• Finished-steel share improved to 89 per cent from 86 per cent, while semi-finished products declined to 12.5 per cent from 14 per cent.

Expansion, Captive Resources and Balance Sheet

Captive-mine iron-ore sales rose to 1.1 million tonnes from 0.31 million tonnes, generating Rs 5.74 billion of revenue and Rs 1.5 billion of EBITDA. SAIL targets 3 million tonnes of iron-ore fines sales in FY27.

Q1FY27 capex was Rs 25.8 billion, compared with FY27 guidance of Rs 150 billion. Capex is expected to exceed Rs 200 billion from FY28. Net debt fell to Rs 214 billion and net debt-to-equity improved to 0.36 times. Higher capex could nevertheless increase leverage, making timely execution of the company's expansion projects important.

Earnings Estimates and Valuation

PL Research revised its FY27E and FY28E EBITDA estimates by plus 3 per cent and minus 5 per cent, respectively, reflecting iron-ore sales and lower volumes.

At the report CMP, the stock traded at 5.2 times FY28E EV/EBITDA. The Rs 185 target price is based on 5.5 times March 2028E EV/EBITDA, using target EBITDA of Rs 201.6 billion and net debt of Rs 345.5 billion.