Steel Authority of India Ltd Q1 FY2024 Concall Summary

Key Takeaways

• Volume up, price down: Best-ever Q1 sales volume grew 23% YoY, but a significant fall in steel prices meant revenue rose only 1% and profitability dropped sharply.
• Coal cost relief is coming: Management expects a ₹4,500-5,000/tonne reduction in imported coking coal costs in Q2, the single biggest lever for near-term margin recovery.
• Rail price revision is a hidden asset: Provisional rail pricing is "much lower" than spot, and the pending price revision will "straight away improve our bottomline."
• Expansion engine is now running: In-principle board approvals secured for IISCO and Bokaro expansions, with debottlenecking orders to be placed by year-end, putting a 3.5 crore tonne capacity target by FY31 in motion.
• What to watch next quarter: Whether the promised ₹4,500-5,000/tonne coal cost reduction materializes, whether NSR stabilizes as management hopes from September, and the quantum of the rail price revision benefit.

Steel Prices & Realisations

• The core problem: Steel prices registered a significant fall during the quarter, dragging down net sales realisation (NSR) and profitability despite record volumes.
• Q1 NSR levels: Flats averaged ₹57,700/tonne and longs averaged ₹55,000/tonne; Q4 comparison figures were not provided on the call.
• Stability signal: Management observed some stability in July and August and is hopeful that from September or the second fortnight of August "things will start looking good."
• Q2 NSR outlook: NSR in Q2 may be at par with Q1 if demand picks up in August and September, implying no sequential improvement is yet baked in.
• The rail pricing gap: Provisional rail pricing of ₹1,768 crores is much lower than current spot prices, with a time lag of roughly 1.5 years between the financial year for which prices are fixed and actual price fixation.

Tulsiani: "There are obviously some resistance in the NSR now. So moving down further. So we are hopeful that maybe from September, August, second fortnight or maybe from September, things will start looking good for us."

Costs & Margin Levers

• Coking coal cost trajectory: Imported coal prices stabilized at USD 230-250/tonne, and management expects a reduction of ₹4,500-5,000/tonne in imported coal cost in the coming quarter, with blended cost around ₹22,000/tonne.
• Consumption lag: The benefit of lower coal prices procured from April-June 2023 is yet to flow through to the P&L because coal is charged on a consumption basis, creating a natural lag that should unwind in Q2.
• Operational efficiency gains: CDI (coal dust injection) improved sharply from 85 kg/tonne in FY23 to 104 kg/tonne in Q1, helped by securing good tie-ups including Russian resources; the operations budget targets 110-112 kg/tonne.
• Other efficiency metrics: Steady progress in reducing specific energy consumption, improving blast furnace productivity, and reducing specific CO2 emissions to 2.48 tonnes per tonne of crude steel.
• Royalty tailwind: Royalty rates went up from mid-May for the Dalli group of mines, but the overall trend in royalty expense is downward.
• Employee cost normalisation: Q1 employee cost was lower than Q4 and the prior year because Q4 FY23 carried a higher actuarial valuation impact; full-year guidance is ₹11,500-12,000 crores.

Tulsiani: "Actually, our operation budget has certified that it will be in the range of 110 to 112, and we are operating at 104."

Expansion & Capex

• Capacity roadmap: SAIL is targeting around 3.5 crore tonnes by FY30/31, up from current levels, through a combination of debottlenecking and larger brownfield expansions.
• Debottlenecking first: A 0.3-0.35 crore tonne ramp-up of existing capacity is underway, with orders expected to be placed by end of this year, cash outflow starting next year, and commissioning phased over 1 to 3.5 years depending on the asset.
• Major expansions approved: In-principle board approval received for IISCO Steel Plant (0.45 crore tonnes) and Bokaro (0.3 crore tonnes); detailed project reports are under preparation, with stage 1 approval expected by Q3 or Q4 2024.
• Durgapur and Rourkela: Product mix for Durgapur expansion is being finalised; board has sanctioned increasing blast furnace capacity at Durgapur and Bokaro, plus clusters at Rourkela, with tendering underway.
• Pellet capacity build-out: A 0.1 crore tonne pellet plant at July has been ordered on a BOO basis; a 4-million-tonne plant at Gua Mines on an MDO basis is expected to have its order placed by mid-2024; a 2-million-tonne plant at Rourkela is being initiated.
• Tasra mine: Board cleared the proposal for the Tasra coking coal mine to be run by an MDO, expected to produce about 0.16-0.17 crore tonnes.
• Capex phasing pattern: Initial years after order placement see 10-15% of order value spent; second and third years see 20-25%; the pace depends on how fast orders are placed.
• FY24 capex target: ₹6,800 crores, of which maintenance capex is ₹1,500-2,000 crores and the remainder is debottlenecking and a small JV component.

Tulsiani: "Whenever we place the orders in the initial first years, it is wrong but the expenditure is almost 10% to 15%. And in the second and third year, it speaks to around about 20% to 25%, and then it goes -- when it starts coming down after that."

Sales Mix & Inventory

• Domestic engine driving volume: Sales volume grew 23% YoY, with domestic sales up 25% while exports declined, reflecting a deliberate focus on the stronger home market.
• Product mix improving: Semis proportion in saleable steel production was 16%, but through conversion services the semis share in actual sales was even lower at 8%, indicating a shift toward higher-value finished products.
• Inventory build-up: Finished steel inventory stood at 0.14 crore tonnes with a stock build-up of 3.5 lakh tonnes in the quarter; management is confident of returning to March 2023 levels by March 2024, citing year-end emphasis on clearing stock and MoU targets.
• Indigenous coal push: SAIL is targeting at least 20% indigenous coal in its total coal mix, reducing reliance on imported coal over time.

Balance Sheet & Subsidiaries

• Debt increased on working capital: Borrowings rose by approximately ₹3,000 crores because payables came down by a similar amount, driven by coal prices; this is a timing shift, not structural leverage.
• Deleveraging target: Management expects borrowings to come down by around ₹4,000 crores, targeting ₹22,000-22,500 crores by year-end, contingent on coal costs and NSR.
• Salem Steel Plant: Incurred a loss of around ₹60 crores in Q1; the plant has stainless steel capacity of 180,000 tonnes but also rolls mild steel.
• VISL plant: Incurred a loss of around ₹15 crores in the quarter; management has received no guidance on restarting the plant.

Guidance & Commitments

Key Metrics