Shares of Steel Authority of India Ltd (SAIL) could come under pressure after Nuvama Institutional Equities downgraded the stock to a ‘Hold’ rating from ‘Buy’ and slashed its target price to ₹135 from ₹154. The downgrade follows a weaker-than-expected Q1FY26 performance and a cautious outlook for steel prices.
SAIL reported an adjusted EBITDA of ₹25.9 billion for Q1FY26, which was significantly lower than Nuvama’s estimate of ₹35.3 billion. The 23% sequential drop in EBITDA was driven by a combination of lower volumes, higher operating expenses, and negative inventory valuation impact, partially offset by improved steel prices.
EBITDA per tonne came in at ₹5,695, down ₹638 QoQ. While SAIL did manage to bring down its external debt by ₹10.7 billion to ₹287.4 billion during the quarter, the operational softness has prompted the brokerage to lower its forward estimates.
Nuvama now expects Q2FY26 EBITDA per tonne to decline slightly QoQ, despite a near ₹2,500/tonne drop in steel prices, as the inventory-related losses recorded in Q1 are likely to be reversed. Still, it sees a subdued earnings trajectory ahead.
“We are cutting our FY26E and FY27E EBITDA estimates by around 7% each to account for weaker steel pricing trends,” the brokerage stated, noting that the valuation has also been adjusted to 6x FY27E EV/EBITDA.
While the long-term prospects of the steel sector remain tied to infra-led demand, Nuvama believes the near-term risk-reward for SAIL has turned neutral, justifying its ‘Hold’ stance.
