Robust Infrastructure And Clean Energy Will Drive Modern Steel Demand

Key Takeaways

• Major government-led infrastructure spending, capacity expansion, and modernization will drive record sales and profit growth, lowering costs and boosting margins.
  
• Expansion into value-added steels and strategic partnerships increases premium market share, strengthens pricing power, and improves resilience against sector volatility.
  
• Heavy reliance on coal, operational inefficiencies, and exposure to global risks threaten SAIL's competitiveness, cost structure, and future profitability amid intensifying industry pressures.

Catalysts

A steel-making company, manufactures and sells iron and steel products in India and internationally.

• Analyst consensus expects strong Indian steel demand, but this likely underestimates the effect of massive multi-year CapEx in infrastructure, affordable housing, and renewables; the government's outsized fiscal push should propel SAIL's sales volumes to record highs, with compounding double-digit volume growth translating directly to revenue and EBITDA expansion.
  
• While the analyst consensus highlights operational efficiency gains, it does not fully account for SAIL's aggressive push into plant modernization and expansive capacity additions (such as the ₹36,000 crore IISCO expansion), which will structurally lower unit costs and enable significant operating leverage, sharply boosting long-term net margins and profit growth.
  
• SAIL's aggressive move to increase its mix of value-added steels and specialty alloys, along with marketing tie-ups (e.g., NMDC steel sales), positions it to capture premium price segments in automotive, construction, and renewables, adding substantial margin uplift and creating more resilient, higher-average realization revenue streams.
  
• Amid sector consolidation and persistent trade barriers against low-cost imports, SAIL stands to rapidly gain domestic market share and improve pricing power, reinforcing both top-line growth and bottom-line protection even during cycles of global steel price weakness.
  
• SAIL's ongoing deleveraging and balance sheet strengthening, paired with potential access to lower-cost green funding for environmental initiatives, will reduce interest expenses, enhance free cash flow, and position the company for accelerated expansion and earnings compounding over the next decade.

Steel Authority of India Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Steel Authority of India compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Steel Authority of India's revenue will grow by 5.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.9% today to 4.7% in 3 years time.
• The bullish analysts expect earnings to reach ₹58.1 billion (and earnings per share of ₹14.05) by about August 2028, up from ₹30.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.8x on those 2028 earnings, up from 16.5x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 22.3x.
• Analysts expect the number of shares outstanding to grow by 1.02% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.89%, as per the Simply Wall St company report.

Steel Authority of India Future Earnings Per Share Growth

Risks

• The accelerating global shift towards decarbonisation and green energy, combined with SAIL's persistent reliance on coal-based steel production, could lead to higher carbon compliance costs and make the company less competitive internationally, thereby eroding net margins over the long term.
  
• Increasing global protectionism and the imposition of trade barriers, such as the ongoing rise in tariffs and carbon border taxes in advanced economies, may limit SAIL's export opportunities and raise costs, which in turn can constrain future revenue growth.
  
• Persistent underinvestment in technology upgrades, coupled with operational inefficiencies, is likely to keep SAIL's cost structure high compared to private and global peers, ultimately suppressing operating margins and profitability.
  
• Rising competition from both domestic players and global low-cost producers, particularly from China and Southeast Asia, is intensifying price pressure, which reduces SAIL's pricing power and could adversely affect future revenues and profitability.
  
• Increasing scarcity and price volatility of key raw materials like coking coal and iron ore, as highlighted by SAIL's dependence on imported coking coal and the impact of royalty changes, exposes SAIL to ongoing cost risks, potentially reducing net margins and affecting long-term earnings stability.

Valuation

• The assumed bullish price target for Steel Authority of India is ₹155.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Steel Authority of India's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹155.0, and the most bearish reporting a price target of just ₹85.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ₹1230.4 billion, earnings will come to ₹58.1 billion, and it would be trading on a PE ratio of 16.8x, assuming you use a discount rate of 13.9%.
  
• Given the current share price of ₹121.07, the bullish analyst price target of ₹155.0 is 21.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.