In October 2025, we had recommended investors hold the stock of Steel Authority of India Ltd (SAIL), a PSU manufacturer of steel with a capacity of around 20 million tonnes per annum (mtpa) and plants in Chhattisgarh, Jharkhand, Odisha, West Bengal and Tamil Nadu.

The recommendation followed the stock delivering 50 per cent returns from an earlier Buy recommendation in January 2023, and as benefits of raw material cost savings were running out. Since then, the stock has delivered better than our expectations and returned 42 per cent from October 2025, including the 25 per cent gains in the year to date (YTD). The stock’s YTD performance is above the 14 per cent gains by Nifty Metals Index and in stark contrast to Nifty 50’s 8 per cent decline.

The steel price rebound, compared to the decline in the last three years, and the inherent operational leverage of the steel industry have aided such performance. With SAIL’s control on operating costs along with higher steel prices, the earnings growth in the next three years should be stronger. The stock is trading at 7.7 times one-year forward EV/EBITDA, which is a 42 per cent premium to the last five-year average. Peers Jindal Steel, JSW Steel and Tata Steel are trading at 9.6/10/8 times on the same metric, which is an average 36 per cent premium to their respective last five-year averages. The valuation premium can be attributed to the revival in steel prices and valuation at the beginning of an upcycle and in anticipation of higher growth. Bloomberg consensus estimates a 45 per cent EPS CAGR over FY25-27 for SAIL. We now recommend investors accumulate the stock on any dips in the volatile macro-environment to gain a cushion from the premium valuations. High-risk investors can consider the stock in anticipation of a turnaround in steel prices. The SAIL stock is now trading at 15-year high. But investors can take solace from the current price to book value of 1.3 times compared to 2.25 times in December-2010 when it reached similar levels.

Steel price recovery

Steel prices have been in decline in the last four years. SAIL net realisations have declined 4.7 per cent CAGR in FY23-9MFY26. This has been attributed to low-cost imports from China, which is the largest steel producer accounting for more than half of the global production. As the Chinese real estate industry slowed down, the excess steel found its way to India, mostly at uncompetitive and lower prices.

But the spot metal prices (steel flats wholesale price index) have increased 11.2 per cent from December 2025 to March 2026. This recovery can be attributed to safeguard duties and steel input prices, apart from robust demand.

The Indian government imposed a three-year safeguard duty of 12 per cent on steel imports from China and Vietnam. After an initial 200-day imposition in April 2025, the same duty was extended to three years in December 2025. This has supported steel prices this year and is expected to last till safeguard duties remain in place. Domestic steel demand has grown at 7 per cent year on year in 9MFY26 and if the demand persists, it should support steel price recovery.

Input costs mixed

Coking coal, which is the primary raw material apart from iron ore, is also on an inflationary path recently and has partly supported the recovery in steel prices. The raw material cost per tonne for SAIL has declined 8.5 per cent CAGR in FY23-9MFY26. But coking coal costs are on the rise from mid-2025 after couple of years of correction. The current conflict has driven the shipping costs of Australian coking coal higher, in turn, driving prices.

The other operating costs of employees and other expenses have also declined 3 per cent CAGR in FY23-9MFY26, driven by cost efficiency measures. SAIL sales volume adjusted for NMDC steel sales of 1 mtpa (SAIL has an agreement with NMDC to sell its steel output) , have grown at 7.4 per cent CAGR in FY23-9MFY26. The company is undertaking debottlenecking and adding steel bar facility of 1 mtpa (5 per cent capacity addition) that should support further capacity expansion.

Operating leverage

Despite increasing raw material costs, SAIL can sustain high profit growth assuming steel prices recover and other costs are controlled. Assuming a 10 per cent CAGR in revenue in the next two years, driven in equal parts by volume and price (spot prices have already grown 11 per cent growth) and a 350-bps decline in gross margins from 50 per cent to 46.5 per cent due to higher input costs, SAIL can deliver 20 per cent CAGR in PAT growth in the next two years. The other operating costs, which have declined 3 per cent CAGR in the last two years, are expected to rise but slower than revenue growth, at 5 per cent CAGR for operating costs for the next two years, which allows the operating leverage to play out.

Debt and capacity expansion

SAIL has reported net debt to EBITDA of 3 times in Q2FY26, which is lower than 3.8 times reported in Q2FY25, as the company is repaying debt and controlling finance costs. But in the next two years, the debt should increase as the company will undertake ₹15,000-crore capex in FY27 (supported by internal cash and debt equally). The company will add 4 mtpa (25 per cent addition to current capacity) to IISCO steel plant, West Bengal, by FY30 at a total estimated cost of ₹36,000 crore.

The company reported revenue and PAT of ₹79,997 crore (9.3 per cent year-on-year growth) and ₹1,537 crore (37.2 per cent growth) in 9MFY26. With improved steel prices and controlled other operating costs, the company should generate higher revenue and profits in the next two years, which should support the capital expansion.

Published on May 2, 2026