Steel Authority of India Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Volume records, margin squeeze: SAIL delivered its highest ever production and sales volumes in FY23, but profitability fell sharply as high input costs and a marginal NSR decline compressed spreads.
• Debt reduction underway: Borrowings fell by ~₹3,608 crores in Q4 to ₹25,662 crores, aided by working capital release, though the debt-to-EBITDA ratio remains elevated at ~3x due to a low earnings denominator.
• Aggressive volume growth targeted: Management guided for 15% sales volume growth to ~1.87 crore tons in FY24, betting on sustained domestic infrastructure demand and a back-ended ramp-up from Q3 onwards.
• Massive expansion cycle begins: The board approved in-principle DPR preparation for Bokaro and IISCO Burnpur, kicking off a phased ~₹1,00,000 crore capacity expansion plan over the next 9-10 years targeting ~3.5 crore tons by FY31-32.
• What to watch next quarter: Whether the recent decline in long-product steel prices stabilizes, the pace of coking coal cost relief flowing through from July, and progress on Jharkhand iron ore evacuation clearances.

Volume & Sales Performance

• Record operational output: SAIL achieved its highest ever hot metal, crude steel, and saleable steel production in FY23 despite a challenging macro environment marked by falling steel prices and supply chain disruptions.
• Domestic strength, export collapse: Domestic sales grew 7% to 1.58 crore tons, while exports plunged 68% to just 0.04 crore tons as international markets remained stressed and uncompetitive.
• Product mix shift accelerates: The share of value-added steel rose to 52.7% from 51.1%, while the semis ratio dropped sharply to 13.1% from 19.3% as long-product mills at Durgapur and ISP ramped up finished goods output.
• FY24 volume bet: Management projects sales of ~1.87 crore tons, a 15% jump, with growth concentrated from Q3 onward; April already crossed 1.3 MT, lending early credibility to the target.
• Railways pricing upside pending: SAIL is billing railways at a provisional ~₹67,500 per ton while FY21-22 pricing remains unfinalized; management expects a substantial lump-sum adjustment once the Cost Accountant finalizes the price, likely by early-to-mid FY24.

Tulsiani: "And that will probably add straight to our bottom line also."

Profitability & Cost Pressures

• Input costs the core drag: Profitability could not match FY22 levels primarily due to high input prices, with coking coal costs projected to remain elevated at ~₹28,000 per ton for the next few months before lower-priced coal flows through from late June/July.
• Employee cost spike in Q4: A one-time actuary revaluation added ~₹400 crores, and the pension provision adjustment from 3% to 6.6% further inflated the wage bill; management expects a ~5% reduction from manpower attrition going forward, partially offset by normal increments.
• Forex losses hit other expenses: A substantial jump in other expenses was driven by foreign currency losses from a sudden dollar rate hike, with 85% of coal being imported and thus exposed.
• Royalty and CSR added pressure: Q4 expenditure rose sequentially due to a royalty increase of over ₹270 crores, conversion charges of ₹23 crores, and CSR spend of ~₹91 crores.
• Operational efficiencies provide a cushion: SAIL made steady progress reducing coal and coke consumption, improving blast furnace productivity, and increasing CDI usage, all reaching best-ever levels in FY23.

Tulsiani: "The benefits of you can say the month of May, from May we have started getting the real benefit of lower price of coal April and May it will probably start getting it from the last week of June second half of June and July onwards."

Balance Sheet & Working Capital

• Debt paydown in Q4: Borrowings reduced by ~₹3,608 crores sequentially to ₹25,662 crores as on 31st March 2023, driven partly by working capital management.
• Working capital swing factors: Trade payables fluctuated with coal prices and deferred payment terms, while steel inventory rose by ~4.5 lakh tons, absorbing cash; debtors remained stable at ~₹5,000 crores.
• Iron ore inventory locked up: The majority of SAIL's iron ore sits in Jharkhand, where evacuation is stalled pending clearance from the state government; royalty has already been deposited on the GeM portal, and management is optimistic about a resolution very soon.
• Debt trajectory tied to steel prices: Management expects coal cost relief to reduce outflows by ~₹1,000-1,200 crores per month, but explicitly declined to commit to a debt reduction figure, noting that net sales realization remains the critical variable.
• Leverage guardrail set: SAIL aims to restrict its debt-to-equity ratio to 1:1 and not exceed that threshold, providing a clear boundary as the expansion cycle begins.

Tulsiani: "We expect it to come down especially with this softening of the coal prices we will surely get a benefit of that... but the other thing which plays a vital role is the net sales realization of our products. So, we have to keep our fingers crossed for that."

Expansion & Capex Cycle

• New growth phase approved: The board gave in-principle approval for DPR preparation for expansions at Bokaro and IISCO Burnpur, targeting an additional ~3 crore tons over the next 3-4 years to reach ~3.5 crore tons by FY31-32.
• Phased execution to manage funding: IISCO Burnpur (~0.45 crore tons) will come first, followed by Bokaro (~0.3 crore tons) roughly a year later, and then Durgapur another year after that, ensuring capital requirements are not bunched up.
• Total outlay and peak spending: The entire expansion program is estimated at ~₹1,00,000 crore over 9-10 years, with material capex beginning in H2 FY25 and peaking in FY27-28 and FY28-29.
• Near-term capex and clearances: FY24 capex is projected at ~₹6,500 crore; Stage 1 clearances for IISCO and Bokaro are expected in 5-6 months, with order placement targeted by end-FY24.
• Coal security via Tasra mine: The Tasra mine tender is finalized with all clearances in place, expected to supply ~1.6 to 0.17 crore tons annually, reducing reliance on imported coal over time.

Tulsiani: "This time we have actually worked out a strategy where the expansion is phased out like initially we are planning our expansion in IISCO Burnpur and the next expansion which you are planning is in Bokaro which will come you can say around about a year later a year down the line and then Durgapur which will again be a year further down the line. So, that all the funds requirement is not bunched up at one place."

Market Outlook & Demand Drivers

• Domestic demand resilient: Indian steel consumption grew 13% in FY23 against a 7% GDP growth, and SAIL expects momentum from infrastructure, renewable energy, automotive, and consumer durables to sustain.
• Global headwinds persist: Apparent steel consumption declined over 3% globally in CY22, with slowdowns in Europe and the US and lockdowns in China; the IMF projects global growth bottoming at 2.8% in 2023 before rising to 3% in 2024.
• World Steel Association rebound: Global steel demand is forecast to see a 2.3% rebound in the current year, aligning with SAIL's expectation of consistent post-monsoon demand.
• Near-term price concern: Management flagged the recent decline in steel prices, especially for long products, as a cause of concern that may affect profitability, though it expects a simultaneous correction in imported coal prices to partially offset the impact.
• Flat vs long spread normalizes: The price difference between flat and long products, which was ₹11,000-₹12,000 in FY22, narrowed significantly through Q2, Q3, and Q4, reducing the relative profitability gap between Rourkela/Bokaro and other plants.

Guidance & Commitments

Key Metrics