Rising costs and tepid demand cloud near-term prospects for SAIL, even as long-term bets hinge on execution
Steel Authority of India Ltd is caught in a perfect storm of margin pressure and execution uncertainty. Two recent broker reports paint a picture of a company treading water—delivering volume growth but struggling to convert it into meaningful profits for shareholders.
Profitability Dips
The immediate pain is visible. SAIL “delivered weak operating performance in Q1FY26 due to inventory revaluation loss in RM and higher other expenses,” according to Prabhudas Lilladhar. The culprit? Long-term coking coal contracts that backfired spectacularly when spot prices collapsed, leaving SAIL holding expensive inventory just as the market turned south.
Recent numbers also tell the story of a margin squeeze. SAIL’s EBITDA per tonne in Q1FY26 came in at just Rs5,695—well below Prabhudas Lilladhar’s estimate of Rs7,513. By Q3FY26, things had deteriorated further. Centrum too notes EBITDA per tonne fell 13% quarter-on-quarter to Rs4,465, dragged down by “weak steel prices” that have been “on a declining trend since early Jun’25.”
The Volume Factor
Volume growth offers cold comfort. SAIL notched 16% year-on-year sales volume growth in Q3FY26 to roughly 5.1 million tonnes, Centrum notes. But this expansion hasn’t translated into shareholder value—a classic revenue-without-profit zone.
The problem is structural. “SAIL is pure-play on steel prices,” Prabhudas Lilladhar warns, and those prices have been uncooperative. Domestic steel spreads softened from Rs25,797 per tonne in Q1FY26 to Rs23,704 per tonne as “subdued demand with the onset of the monsoon and sporadic import shipments” weighed on the market.
However, SAIL is ramping up capital spending. Centrum flags that “management has revised FY26 capex guidance to ~Rs75-100bn (from ~Rs75bn earlier) and guided for a higher capex of ~Rs150bn in FY27.”
The concern is explicit: “We believe this step-up in capex could slow the pace of deleveraging.” Translation: SAIL may be building capacity while simultaneously building debt.
The projects themselves sound promising. Centrum highlights “1mn tonne TMT bar mill at Durgapur” and a “4.5mn tonnes expansion at IISCO steel plant.” Prabhudas Lilladhar notes that “ISP’s 0.5mtpa debottlenecking expansion is expected by FY28E.” But as Prabhudas Lilladhar soberly observes, “long-term volume growth would depend upon successful execution of planned capex”—hardly a certainty in India’s infrastructure sector.
What Analysts Are Actually Saying
Both research houses have downgraded their outlook. Prabhudas Lilladhar maintains a HOLD rating with a modest target price of Rs133 (down from Rs136), implying barely 5% upside from current levels around Rs126. The valuation? A relatively expensive 6.4x FY26 EV/EBITDA, falling to 5.3x for FY27.
Centrum too is cautious, reiterating NEUTRAL with a target of Rs140 (cut from Rs146) and slashing EBITDA estimates by “~11% for FY26 and ~7% each for FY27 and FY28.”
Any upside to the story? SAIL benefiting from higher steel prices.
Prabhudas Lilladhar’s assessment is characteristic: “We expect SAIL to remain a play on steel prices.” That means investors will have to keep a close watch on supply demand of steel and any price escalation.
