Mumbai: Shares of Steel Authority of India Ltd (SAIL) have plummeted by 11% over the past year, even as the company aims to ramp up production capacity from 20 Million Tonnes Per Annum (mtpa) to 35 mtpa by FY31. Despite a targeted investment of ₹1 trillion, analysts warn that SAIL may struggle to keep pace with competitors in an expanding market, making profitability a concern.
SAIL’s Ambitious Growth Plans
Steel Authority of India Ltd (SAIL) is not shy about its ambition. In its recently released FY25 annual report, the company reaffirmed its goal to increase production capacity to 35 million tonnes per annum (mtpa) by FY31, an ambitious leap from its current capacity of 20 mtpa. To achieve this, SAIL plans to invest a staggering ₹1 trillion, with peak expenditures expected to occur between FY28 and FY29, estimating costs between ₹10,000-15,000 crore during this period.
However, this undertaking isn’t without risks. The Indian steel market is becoming increasingly competitive, with rivals also ramping up their production capabilities. This could result in domestic oversupply, putting pressure on all players, including SAIL.
A Rocky Start to Fiscal Year 2026
The beginning of FY26 has not been smooth sailing for SAIL. The company has revised its sales volume guidance downwards, now projecting sales of 18.5 mt (excluding NMDC Steel sales), a decline from an earlier estimate of 19.2 mt. This revised estimate is only a slight increase of 3% from 17.9 mt during FY25.
The analysts at IDBI Capital Markets & Securities are keen to point out that SAIL is lagging behind its competitors in terms of capacity expansion and operational efficiency. The report states: “However, additional volumes from NMDC should support topline, albeit with some margin pressure.”
Cost Disadvantages Contributing to Low Growth
When it comes to costs, SAIL finds itself at a significant disadvantage compared to its competitors. In FY25, the employee cost per tonne of production at SAIL stood at ₹6,512. In contrast, the figures for industry giants like JSW Steel and Tata Steel are much lower, at ₹1,817 and ₹3,943 respectively. The annual report candidly acknowledged that “high fixed employee costs and lower per capita productivity present challenges in staying competitive with leaner and modernized private players.”
Additionally, the company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) per tonne in the June quarter (Q1FY26) clocked in at ₹6,206, again trailing significantly behind JSW Steel, which reported ₹11,324 per tonne. Such disparities raise serious concerns about SAIL’s profitability, especially in an oversupplied market.
Recent Developments Providing Some Relief
Despite these challenges, SAIL has found some relief through safeguard duties, which have helped net sales realization improve by 3% quarter-on-quarter, reaching ₹51,700 per tonne in Q1FY26. Safeguard duties are additional taxes on imports aimed at protecting domestic producers, especially when faced with surges in imported steel.
Although prices have dipped again in Q2, the outlook for H2FY26 looks more promising due to a recent recommendation by the Directorate General of Trade Remedies to impose a final safeguard duty on flat steel for the next three years. The interim duty had initially been put in place for 200 days starting in April, giving local producers, including SAIL, much-needed breathing room.
Moreover, SAIL’s vertically integrated supply chain is another factor in its favor. The company sources all of its iron requirements from its own captive sources and is currently developing additional mines at Taldih and Gua. This strategy should help with cost management and insulate the company from volatility in the iron market.
Future Watch: Executing the Growth Strategy
As of now, SAIL is trading at an FY26 EV/EBITDA ratio of 6.9, according to data from Bloomberg. The successful execution of its ambitious capex plans will be critical for the company to boost its volume and regain momentum.
Recent trends in the Indian economy, along with rising steel demand driven by government infrastructure projects, offer a glimmer of hope for SAIL. However, whether the company can navigate the complex landscape dominated by more efficient competitors remains to be seen.
In summary, while the future does present opportunities for Steel Authority of India Ltd, its ability to effectively manage its growth plans amidst a challenging market will dictate how swiftly it can recover from recent setbacks. As the Indian economy evolves, all eyes will be on SAIL to see if it can stand tall against the pressures of an increasingly competitive landscape.
Bankerpedia’s Insight💡
SAIL’s challenges reflect broader trends impacting India’s banking and finance sector, particularly in corporate credit risks. With a projected ₹1 trillion investment to enhance production capacity, the road ahead appears fraught with competition and rising costs, especially from private players. This situation underscores the importance of careful credit assessment by banks when evaluating lending to such companies. Investors should remain vigilant, as SAIL’s struggles may influence market confidence in the steel sector and beyond. Strategic monitoring of earnings and debt levels will be essential for assessing investment viability.
What Does This Mean for Me?🤔
- Salaried Person → Potential job insecurity due to SAIL’s financial challenges.
- Business Owner → Potential for increased costs and competitive challenges ahead.
- Student → SAIL’s struggles may affect student job opportunities.
- Self-employed → Potential increase in steel prices affects project costs.
- Homemaker → SAIL’s struggles may affect steel prices, increasing household costs.
- Retiree / Senior Citizen → SAIL’s struggles may affect retiree investments negatively.
- Job Seeker → SAIL’s challenges may limit job openings in steel industry.
- Farmer / Rural Citizen → Increased production costs may lead to higher consumer prices.
Research References📚
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