After Maharatna state-run steel company Steel Authority of India Limited (SAIL) announced its Q4 earnings on May 20, 2024, domestic brokerage Centrum Broking has continued with its ‘sell’ call on the stock with a target price of Rs 95, implying a potential downside of 41.5 per cent from the previous close.

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At the last count, shares of the country’s largest steel producer traded marginally higher at Rs 162.8 apiece.

The brokerage has reiterated its ‘sell’ view as it sees little scope for volume and earnings improvement over the next two years, given the company’s expansion plans whereby it aims to increase capacity by 75 percent to 35 mtpa by FY31.

We envisage volume to marginally increase over FY24-26, limited scope of EBITDA growth and loss of market share in the domestic market, noted the report.

Company’s ambitious capacity addition plans

With an estimated capex, of Rs 1,00,000 crore the company targets to add 15mt capacity by FY31-32. The phase 1 expansion plan of Rs 360bn has been approved by theboard which consist of expansion of Rourkela steel plant, Durgapur plant and Bokaro plant. For the current fiscal year 2025, the estimated capex is Rs 6300 crore.

Further, can deteriorate leverage position once capex of Rs1000bn kicks in from FY26 in phases to add 15mt overall capacity, it added.

Net debt increases 18% on-year

In the backdrop of increased inventory leading to a higher working capital, the company’s net debt in the previous FY24 has soared 18% on-year from Rs 30,300 crore in FY23 to Rs 35,700 crore in FY24. For the ongoing FY25, the company’s management has guided to maintain net debt below Rs 30,000 crore.

SAIL’s Q4 results 

The Q4FY24 adjusted operating profits were in-line with the brokerage’s estimate if adjusted to one-off prior period gain over rail price revision. The company reported EBITDA of Rs 3470 crore, up 62.4 per cent sequentially. However, adjusting to rail price revision related to prior period; EBITDA stood at Rs1760 crore down 18 per cent sequentially and Adj EBITDA/t at Rs3,863/t down Rs1,770/t QoQ. This decrease is majorly due to lower realisation by Rs3,883/t
QoQ and increase in coking coal cost by Rs2,800/t QoQ.

The brokerage hence value SAIL stock at 5x FY26E EV/EBITDA continues with its earlier call of ‘sell’ 

SAIL’s share price performance

SAIL shares have given nearly multibagger returns of over 99 per cent in the last one year, sharply outperforming Nifty Metal which during the same timeframe has generated over 65 per cent retur