SAIL Q3 Results Review: Systematix Maintains 'Hold' On The Stock, Lowers Target Price — Here's Why

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Systematix Report

Steel Authority of India Ltd.'s earnings in the near to medium term will likely increase, led by softening raw material prices supported by stable steel prices, which have likely bottomed out at current levels. The recent imposition of a 25% import duty on steel in the US is unlikely to have a notable impact on Indian steel manufacturers’ volumes, however, its impact on the global trade flow could exert pricing pressure.

We cut our FY25E/FY26E/FY27E Ebitda by 10%/17%/1.5% and reduce the target multiple to 5.5x FY27E EV/Ebitda (6x earlier) to factor in the impact of global industry developments and broader market re-rating.

We expect SAIL to deliver 1%/8%/13% revenue/Ebitda/PAT CAGR over FY24-FY27E which would largely be driven by better capacity utilisation and lower raw material costs.

Future growth would be driven by larger capacity expansions to take the capacity from 20mt currently to 35mt by 2031. We value SAIL at 5.5x FY27E EV/Ebitda with a revised target price of Rs 116/share (Rs 129/share earlier), implying a 9.6% upside from CMP.

Notably, Indian steel manufacturers are still awaiting a decision on implementation of safeguard duty on imports and a favorable outcome could drive stock re-rating. Further drop in steel prices and increase in raw material costs are key risks for the company. Maintain Hold.

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