Steel Authority of India Ltd Q1 FY2023 Concall Summary

Key Takeaways

• Profitability collapsed on coal costs: EBITDA fell 69% YoY to ₹2,076 Cr as coking coal prices peaked at $670–$680/tonne during the quarter, though those prices have since crashed to ~$200.
• Revenue held up on better realizations: Revenue grew 16% YoY to ₹24,029 Cr despite slightly lower sales volumes, because blended NSR rose to ₹66,829 vs ₹59,495 in Q4 FY22.
• The coal tailwind is real and imminent: Imported coal procurement cost is expected to drop ₹4,000–₹5,000/tonne in August and further from September, with benefits accruing from mid-August onward.
• Balance sheet stretched but temporary: Gross debt rose to ₹22,101 Cr on working capital tied to coal payments; management expects this to unwind as coal costs normalize and sees a path back toward a net debt-free company.
• What to watch next quarter: Whether the promised coal cost relief actually flows through to margins, the pace of working capital unwinding, and any progress on export tariff relief.

The Coal Shock & Recovery

• Coking coal prices spiked on war: HCC prices soared to $670–$680/tonne between February and May following the Russia-Ukraine war, then collapsed to ~$200 by June–July.
• Q1 bore the worst of it: The quarter absorbed coal supplies affected from March to May when the flat index hovered between $500–$600, making it the peak pain quarter.
• Imported coal cost trajectory: Procurement cost was ~₹39,500/tonne in Q1, ~₹38,000 in July, expected to drop ₹4,000–₹5,000 in August and decline further from September.
• Indigenous coal provides a floor: Domestic coal costs ~₹13,000/tonne and makes up only 14%–15% of total consumption, so the import price swing dominates the P&L.
• No inventory write-downs taken: Management confirmed no inventory losses or value write-downs were booked despite the sharp commodity move.

Tulsiani: "The prices which had soared to as high as $670 to $680 per tonne for HCC have now come down to around $200 level."

Realizations & Product Mix

• Blended NSR already correcting: Q1 NSR was ₹66,829, up from ₹59,495 in Q4 FY22, but July NSR fell to ~₹57,000, a ₹1,200–₹1,300 decline from the June quarter level; August pricing is flat vs July.
• Flats hit harder than longs: Flat products felt a much greater adverse impact because they are guided by the international market, while longs held up better because the secondary sector uses thermal coal (whose prices fell less).
• Long vs flat realization gap: The difference was ~₹7,000–₹8,000 in Q1, favoring longs; management sees SAIL's large long-product component as an advantage as monsoon recedes and construction demand picks up from August.
• Rail price revision booked: ₹489 Cr was recognized in Q1 as a provisional price revision for 2021-2022 rails; an additional ~₹5,000–₹6,000/tonne is expected for 2020-2021 once finalized.
• Export volumes collapsed: Exports fell from 3,64,000 tonnes in Q1 FY22 to 1,66,000 tonnes in Q1 FY23, explaining the slight YoY volume decline despite domestic growth.

Tulsiani: "Regarding the NSR it is basically market driven so wherever the market takes us we will go there because it is not that SAIL decides the market prices."

Volume & Production

• Best-ever Q1 production: Crude steel output reached 4.33 MT vs 3.77 MT CPLY, a record for the quarter.
• Sales volume slightly lower: 0.32 Cr tonnes vs 0.33 Cr tonnes YoY, entirely due to the export drop; domestic sales grew.
• Full-year volume guidance maintained: Management is confident of hitting the target, citing July sales exceeding 0.14 Cr tonnes and August targeted as the highest ever; strict targets have been set for the marketing team.
• No production cuts planned: Management explicitly ruled out any production cut in Q2, and denied rumors of permanent blast furnace shutdowns; occasional shutdowns are only for major capital repairs with no impact on monthly output.

Tulsiani: "Absolutely not. We will be achieving our sales as per whatever guidance we have given because we feel that in this coming quarters the domestic consumption is surely going to go up and we will be surely achieving our target."

Costs Beyond Coal

• Other expenses spiked: ₹7,200 Cr in Q1, driven by a ~₹400 Cr royalty increase and a ~₹500 Cr foreign exchange variation hit.
• Employee cost contained: Quarterly employee cost post the November 2021 wage revision is ~₹3,000 Cr, up only ~₹200 Cr from Q1 FY22; management does not expect much increase going forward because many senior employees at the top of the pay scale will retire and be replaced by new recruits at basic scale.
• Productivity tailwind: With expansion largely complete and the same or lower manpower, productivity is expected to improve as volumes rise.
• Durgapur & IISCO drags: Durgapur was impacted by a high proportion of semi-finished products; IISCO had slightly lower production in Q1 but is expected to return to profitability as output ramps up.

Tulsiani: "Whoever is retiring is having a very high pay and the person joining will be at the basic scale so we do not apprehend much of an increase in the salaries."

Balance Sheet & Working Capital

• Debt rose on coal payments: Gross debt increased to ₹22,101 Cr because of substantial working capital tied to coal procurement during the quarter; cash from operations rose ~₹8,000 Cr on the same account.
• Working capital expected to unwind: Management expects working capital to come down substantially as coal payments reduce in the coming months.
• Net debt-free ambition revived: With coking coal costs normalizing, management sees opportunities to resume the path toward a net debt-free company.
• Capex plan maintained with caveats: Full-year plan of ₹8,000 Cr stands, though some slippages are possible; Q1 spending was low industry-wide, orders were placed in Q1, and fund flows typically pick up from October–November.
• Capex focus: Investments are mainly on the iron side for improving production, with debottlenecking schemes prioritized for faster completion; management did not quantify the cost or value benefits when asked.

Company Speaker: "With coking coal cost coming down we are also smell opportunities to again take the path towards a net debt free company."

Regulatory & Policy

• Export tariff advocacy ongoing: SAIL has been requesting the ministry to waive export tariffs, and the Indian Steel Association is also taking up the matter, but no significant headway has been made so far.
• Government's trigger unknown: When asked what variable the government is watching before revising export tariffs, management responded: "We do not have any idea from that."
• PLI scheme participation: SAIL will participate in the PLI scheme for rails produced at Bhilai; the capex extent is still being worked out.
• Head hardened rail still in trial: Some quantity will be produced this year, but volumes will be finalized only after trials are successful; management declined to give a trial completion timeline on the call.
• Iron ore sales nil in Q1: Only liftment of old orders from the previous quarter occurred; sales are possible in Q2 if the right price is obtained.

Guidance & Commitments

Key Metrics