- EBITDA expected to rise from Rs4,500/t to Rs7,000‑8,000/t within two quarters.
- Inventory unwind and higher flat/long realizations are the primary catalysts.
- Coking‑coal costs are up 18% QoQ, partially offsetting gains.
- Deleveraging path points to FY26 as a turning point.
- Valuation at 1.1x P/B versus sector average 2.8x makes the stock unusually cheap.
You missed the warning sign in SAIL’s latest earnings preview – and that could cost you.
Why SAIL's EBITDA Surge Could Redefine the Indian Steel Landscape
Emkay Global Financial’s fresh research report paints a vivid picture: SAIL’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) per tonne is set to leap from roughly Rs4,500 in Q3 to a range of Rs7,000‑7,500 in the next two quarters, and potentially Rs7,500‑8,000 by FY28. That isn’t a modest uptick; it’s a 60‑80% acceleration that could reposition the company from a laggard to a sector leader.
The catalyst is two‑fold. First, SAIL is aggressively unwinding inventory that piled up during the 2022‑23 demand slump. Second, product mix improvements—especially at the Durgapur mill slated for full‑capacity by FY28—are delivering better price realizations. Flat steel prices are already averaging +11% QoQ, while long products enjoy a +17% uplift.
How the Inventory Unwind and Coal Costs Shape SAIL's Near‑Term Cash Flow
Inventory unwind directly frees up working capital. By converting stale stock into sales, SAIL improves its cash conversion cycle, turning a historically cash‑intensive operation into a generator of free cash flow. The report projects that this cash‑flow boost will fuel a decisive deleveraging effort, targeting a healthier balance sheet by FY26.
However, the upside is not without a counterweight. Coking‑coal—a critical input for steel‑making—has risen 18% quarter‑on‑quarter. Higher coal costs compress margins, but Emkay believes the spread between steel selling prices and coal input (currently around USD350 per tonne) remains sufficient to sustain the projected EBITDA range, provided SAIL continues to optimise its coal blending strategy.
Sector Context: What Tata Steel and JSW Are Doing While SAIL Revamps
SAIL does not operate in a vacuum. Tata Steel, the sector’s market‑cap heavyweight, is expanding its downstream capacity in Gujarat and focusing on high‑margin automotive steel. Its EBITDA per tonne is already near Rs9,000, but it trades at a premium P/B of 3.2, reflecting both growth expectations and a tighter balance sheet.
JSW Steel, another peer, has leaned heavily on its integrated cement‑steel complex to offset raw‑material price volatility. JSW’s P/B sits at 2.5, and its EBITDA trajectory is flatter, hovering around Rs6,500‑7,000/t. Compared with these peers, SAIL’s valuation at 1.1x P/B appears dramatically discounted, suggesting a risk‑adjusted arbitrage opportunity if the earnings recovery materialises.
Historical Parallel: Steel Cycles and What They Teach Us
Indian steel has cycled through three major troughs since the early 2000s—each followed by a sharp recovery driven by infrastructure spending, import‑substitution policies, or global demand spikes. In the 2015‑16 downturn, for instance, Steel Authority of India Limited (the predecessor of today’s SAIL) posted a 45% EBITDA decline, yet a disciplined inventory reduction and a shift to higher‑margin products propelled a 70% EBITDA rebound within 18 months.
The lesson is clear: when a cyclical heavyweight trims excess stock and improves product mix, earnings can swing dramatically. SAIL’s current trajectory mirrors that historic playbook, only now the macro backdrop includes a robust government push for domestic steel usage under the ‘Make in India’ initiative.
Technical Terms You Should Know
- EBITDA/t: Earnings before interest, taxes, depreciation and amortisation per tonne of steel sold—a key profitability metric in commodity‑heavy industries.
- Inventory Unwind: The process of selling off accumulated stock to reduce holding costs and free up cash.
- Coking‑Coal Blend: The mix of high‑quality coal (coking) and cheaper thermal coal used to optimise furnace efficiency and cost.
- P/B Ratio: Price‑to‑book ratio; a valuation metric comparing market price to book value. A lower P/B can indicate undervaluation, especially when peers trade higher.
Investor Playbook: Bull vs Bear Cases for SAIL
Bull Case: The inventory unwind proceeds faster than expected, flat and long product realizations climb to +15% QoQ, and coal blending innovations keep input costs in check. Cash flow surpluses enable a rapid debt‑to‑equity reduction, pushing the P/B down further and attracting value‑oriented funds. Target price could stretch to Rs250, delivering >20% upside from today’s levels.
Bear Case: Coal price spikes exceed 30% QoQ, eroding the steel‑coal spread. Global steel demand softens, causing flat and long prices to stall or decline. Deleveraging stalls due to covenant breaches, forcing the company to raise fresh equity at a discount. In this scenario, EBITDA per tonne may plateau around Rs5,500‑6,000, and the stock could slip back toward Rs150.
In summary, Emkay’s upgraded target price of Rs200—a 14% premium to its prior forecast—reflects confidence in a near‑term earnings bounce and an attractive valuation cushion. For investors seeking exposure to India’s steel renaissance without paying a sector premium, SAIL now sits at a crossroads where disciplined execution could yield outsized rewards.