Leading institutional brokerages are sounding a cautious note on Steel Authority of India Ltd (SAIL) shares, despite the public sector steelmaker reporting stronger-than-expected results for the March quarter (Q4 FY26). While recent performance was robust, analysts from Nuvama Institutional Equities and Equirus Securities suggest that SAIL's profitability is likely to peak in the June quarter (Q1 FY27), with their target prices indicating a significant potential downside for the stock.
Analyst Targets Point to Downside Risk
Nuvama Institutional Equities recently raised its target price for SAIL by 25% to Rs 139 per share, up from Rs 111. However, this revised target still implies a potential downside of approximately 28% from current trading levels. Similarly, Equirus Securities increased its target to Rs 125 from Rs 115, which suggests a potential downside of 25% for the Maharatna stock.
Other brokerages also share this cautious outlook. Elara Capital, while having a higher target of Rs 191, downgraded its rating to 'Reduce' from 'Accumulate', citing elevated earnings cyclicality and uncertain global steel demand. HDFC Institutional Equities also suggested a target of Rs 190, aligning with the general sentiment of limited upside.
Why Profitability May Peak Soon
Nuvama analysts highlighted that SAIL's profitability, measured by EBITDA per tonne, may reach its zenith in Q1 FY27. They anticipate EBITDA per tonne to be around Rs 9,200 in this quarter, forecasting it to be the peak. While overall FY27 EBITDA is expected to grow by 37% year-on-year, much of this benefit is projected to be absorbed by significant capital expenditure.
Capex and Debt Concerns
A primary concern for brokerages is SAIL's substantial multi-year capital expenditure cycle, projected to exceed Rs 1,000 billion. This aggressive expansion, including the IISCO expansion, is expected to place considerable strain on the company's balance sheet before yielding material benefits. Nuvama forecasts SAIL's net debt to increase by 52% over FY26–28E, reaching Rs 46,500 crore, with a net debt/EBITDA ratio of 3.1 times. This rising debt level is a key factor underpinning their 'REDUCE' rating.
External Risks and Valuation
Equirus Securities pointed out that domestic steel prices, currently near cyclical highs, are unlikely to be sustainable. Factors such as weakening Chinese demand, global tariff disruptions, Carbon Border Adjustment Mechanism (CBAM) risks, and potential pressure on domestic spending from higher crude prices pose significant external challenges. Both Equirus and Nuvama believe that current valuations already discount favorable pricing scenarios, making the stock appear expensive relative to its future earnings and debt profile. Equirus maintains a 'SHORT' rating, noting the stock trades at 6.3x FY27E EV/EBITDA.
In summary, while SAIL is poised to benefit from firm domestic steel prices and higher sales volumes in FY27, analysts believe that these near-term positives are largely priced into the stock. The combination of an impending peak in profitability, substantial capital expenditure leading to increased debt, and various external market risks suggests a challenging outlook for SAIL shares in the coming period.