Steel Major Posts Q2 Results Amid Margin Headwinds

Adjusted revenue stood at Rs 31,998 crore with EBITDA of Rs 4,216 crore.

Reader Takeaway: Growth is offset by rising coking coal costs and reduced volume guidance, tempering near-term earnings expectations.

What just happened

The company reported a 20% year-on-year revenue increase to Rs 31,998 crore. However, EBITDA performance fell short of market expectations, declining 5% sequentially to Rs 4,216 crore. This margin contraction was primarily driven by elevated coking coal costs, which rose to Rs 22,930 per tonne in Q2. Management has further lowered the FY27 sellable steel sales guidance from 22 million tonnes (MT) to 21 MT.

Why this matters

The reduction in volume guidance combined with an impending Rs 1,000 per tonne increase in coking coal costs for Q3 suggests persistent earnings pressure. Additionally, impending wage revisions and a significant Rs 1.2 lakh crore multi-year capex plan could impact return ratios as debt levels rise to fund capacity expansions from 20 MTPA to 35 MTPA.

Risks to watch

Investors should monitor the company's rising financial leverage as it executes its massive capital expenditure program. Operational risks remain elevated given the tight volume headroom provided by the revised 21 MT guidance. Further, the management’s plan to trim the workforce from 48,000 to 46,000 indicates a focus on cost rationalization amidst challenging market conditions.

What to track next

Watch for updates on raw material price trends and the successful execution of the aggressive capex rollout. Shareholders should keep a close eye on interest coverage ratios as the company transitions to a phase of higher annual spending of approximately Rs 20,000 crore starting in FY28.