Brokerage firm Anand Rathi has started coverage on Steel Authority of India (SAIL) with a target price of Rs 230, citing potential margin improvement as raw material costs stabilize. The report highlights the company's Rs 1.2 trillion capital spending plan to boost capacity to 35 million tonnes by 2031. Investors should track the execution of this massive expansion and the impact of volatile coking coal prices on near-term profits.
Brokerage firm Anand Rathi has initiated coverage on the public sector steel manufacturer Steel Authority of India (SAIL) with a target price of Rs 230. The brokerage’s outlook is supported by expectations of better steel price realization and a potential moderation in raw material costs in the coming quarters. This comes after a challenging second quarter in the 2027 fiscal year, where the company faced margin pressure due to elevated costs.
At the core of the company’s future strategy is a significant capital spending program totaling Rs 1.2 trillion, set to unfold between the 2027 and 2031 fiscal years. The goal is to expand the company's production capacity by approximately 75%, aiming for 35 million tonnes. Key expansion projects are planned across major units, including IISCO, Rourkela, Bokaro, and Bhilai. While this represents a major growth phase, large-scale infrastructure projects often involve complex execution timelines and significant cash requirements, which investors should monitor closely alongside demand trends.
The steel industry remains highly sensitive to raw material price volatility, particularly coking coal. In the second quarter of the 2027 fiscal year, SAIL saw coking coal costs climb to Rs 22,930 per tonne, which impacted operating margins. However, management expects these costs to soften to around Rs 22,000 per tonne by the fourth quarter of the same year as global prices stabilize. If the company successfully implements expected steel price increases of roughly Rs 4,000 per tonne, it could provide a necessary buffer to help protect profit margins against these input cost pressures.
To improve cash flow, the company is also focusing on inventory management, with plans to liquidate 1.2 million tonnes of inventory during the current fiscal year. This action is projected to contribute roughly Rs 11 billion to operating profit. Looking further ahead, SAIL is working to scale its iron ore production to 100 million tonnes by 2031. By ramping up operations at mines such as Rowghat and Gua, while maintaining consistent output from others, the company aims to reduce its reliance on external suppliers and achieve better cost control.
While the company has adjusted its sales guidance for the current fiscal year to 21 million tonnes, analysts generally view this as a conservative move rather than a sign of structural weakness. The critical monitorables for investors going forward will be the company's ability to execute its expansion projects without major delays, the actual movement of global coking coal prices, and the maintenance of demand in the domestic steel market. As a cyclical business, SAIL remains susceptible to global commodity price swings, and the ability to pass on cost changes to customers will be a key factor in its financial performance.