Steel Authority of India Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Rail price benefit masks underlying improvement: Q3 EBITDA fell to ₹2,390 crores from ₹4,043 crores in Q2, but the entire decline is explained by a ₹1,700 crores rail price revision booked in Q2. Excluding that one-off, Q3 EBITDA was better than Q2, driven by a ₹600 crores NSR improvement.
• Coal costs and NSR pressure are squeezing Q4: Coking coal consumption cost jumped ₹4,000/ton QoQ, and management sees NSR stress continuing in Q4, breaking the historical pattern of Q4 being the best NSR quarter.
• Debt is rising, not falling, and the year-end target looks ambitious: Debt rose from ₹28,000 crores in December to ₹29,000 crores in January, and management does not expect a major reduction by March 31st, despite a stated target of ₹23,000–₹24,000 crores.
• Expansion pipeline is taking shape but timelines are distant: Board approval for 4.08 MT at one plant, DPR consultant appointed for Bokaro, and in-principle approval for Durgapur, all pointing toward a 3.5 crore ton capacity by 2030-31.
• What to watch next quarter: Whether Q4 sales volumes can offset NSR and coal cost pressure to deliver any debt reduction, and whether the railway finalizes a provisional price for FY23 that provides a Q4 benefit.

Profitability Bridge: The Rail Price Distortion

• Q2 to Q3 EBITDA walk: The ₹1,653 crores decline was driven by a ₹1,700 crores rail price revision benefit taken in Q2. Excluding that, Q3 EBITDA improved, with better NSR contributing ₹600 crores, offset partially by material user impacts of ₹333 crores and a volume mix drag of ₹1,037 crores.
• NSR improved sequentially but Q4 looks weaker: Average realization rose to ₹55,300/ton in Q3 from ₹53,400/ton in Q2, but management flagged that Q4 NSR is under stress and the historical pattern of Q4 being the strongest NSR quarter is not holding this year.
• Coal cost is the main margin headwind: Q3 coking coal consumption cost (ex-CDI) increased almost ₹4,000/ton from Q2 to Q3. On a blended basis including CDI, cost rose to ₹23,600/ton from ₹23,271/ton. January ex-CDI prices were ₹26,633/ton and management expects this level to persist through February and March.
• Employee costs are a steady, declining tailwind: Employee cost is expected to remain around ₹3,000 crores per quarter this year, with roughly 3,000 employees retiring annually via superannuation, bringing costs down gradually.
• Management declined to provide a detailed EBITDA bridge vs peers when asked to explain SAIL's relative resilience despite negative operating leverage and coal cost increases, saying it would share the breakdown offline.

Nigam: "As far as the trend of the current year concern, the NSR is -- under stress in Q4 also. So what you are saying that Q4 historically has been the best NSR that we are not seeing in this particular quarter..."

Debt & Working Capital

• Debt is moving in the wrong direction: Absolute debt rose from ₹28,000 crores in December to ₹29,000 crores in January, driven by NSR pressure and higher coal prices. Management is trying to reduce debt in February and March through higher sales volumes but does not expect a major reduction by March 31st.
• Year-end target looks out of reach: Management had guided for debt to come down to ₹23,000–₹24,000 crores by end of FY24, but the January figure of ₹29,000 crores and the cautious Q4 outlook make that target appear difficult.
• Working capital details withheld: When asked to quantify working capital buildup in Q3 and expected unlocking in Q4, management declined to answer on the call, offering to provide the information offline.

Nigam: "I'm not expecting that in February or March, by the 31st March, there will be any major reduction that debt is concerned. Still we are trying that by increasing the sales volume, we will reduce our debt to some extent."

Sales Volumes & Demand

• Q4 volume outlook is cautiously optimistic but unquantified: January sales were reported at 0.15 crore tons. Q4 demand is traditionally strong and management is trying to maximize it, but declined to quantify February and March volumes or provide an FY24 exit volume target.
• Indian steel demand story remains intact: Management cited the World Steel Association forecast of 7.7% Indian steel demand growth in CY24, supported by government infrastructure spending, residential sector growth, PLI schemes, renewable energy investment, automotive, and consumer durables.
• Utilization is high but has room: Saleable steel capacity is 1.95–2 crore tons, with current utilization at approximately 90–92% based on 9-month production extrapolation. The Bhilai caster implementation, expected next year, can further improve utilization by sweating assets.

Raw Material Strategy

• Tasra mine is the key to coal cost relief: The MDO has been awarded to Power Mech for the Tasra coal mine, which will extract 0.15 crore tons of coal, replacing imported coal and reducing the overall blend cost. All approvals are in place, and production is expected to start from the later part of next year.
• Rowghat mine sees first progress: Interim mining has started in one block at Rowghat, though no timeline for full operations was provided.
• Ore inventory monetization is underway: Odisha ore inventory, for which permission already existed, is being liquidated. Jharkhand ore inventory, which initially lacked permission, has now received approval for internal use within plants, and movement has started.
• Royalty impact from NMDC price hikes is real but unquantified: If NMDC increases prices, the IBM price index rises, automatically increasing royalty payments. Management acknowledged some impact in Q3 over Q2 but could not provide the quantum.
• Expansion raw material security is factored in: The expansion plan to 3.5 crore tons by 2030-31 includes projects to increase mine capacities. For coking coal, the Tasra mine will increase indigenous coal usage in the blend, reducing imported coal reliance.

Expansion Pipeline

• Multiple projects are moving through the approval chain: Stage 1 approval from the SAIL Board has been received for a 4.08 MT crude steel expansion at one plant. The PFR for Bokaro expansion is complete with principal approval and a consultant appointed for the DPR. Durgapur brownfield expansion was submitted in October and has received in-principle approval.
• IISCO is a greenfield project within an old plant area: HRC will come first, and once stabilized, CRC will follow, though the total cost already includes CRC.
• A new TMT mill at Durgapur will absorb semis: A 0.1 crore ton TMT mill is planned to consume semis currently being sold, plus approximately 0.04 crore tons on a comparable basis. The timeline has not yet been decided.
• Product mix is improving in the meantime: The proportion of semis in saleable steel production has been reduced to less than 15% by engaging conversion services, with semis share in sales even lower at 7%.
• Capex target for next year is ₹6,000 crores: Beyond that, management said it is difficult to predict at this juncture.

Regulatory & Contingent Items

• Railway price revisions remain a multi-year overhang: Management has taken up with the railways for a provisional price for FY23, but there is no commitment on timing or whether any benefit will come in Q4. The final price for FY21 and FY22 has been decided by the chief advisor and will be finalized soon by the Railway. Information for FY22–23 has been submitted, awaiting confirmation of the fair price.
• RINL working capital assistance is not on the table: No official communication has been received regarding working capital assistance to RINL, and no assistance has been given as of now. When asked if SAIL would be open to it, management deflected, saying it would need to see a proposal first.
• Contingent liabilities are being fought: Management believes SAIL has a very fair chance of winning pending cases across various forums and is continuously evaluating them.

Nigam: "As far as our understanding is concerned, we have a very fair chance of winning this case. We are continuously evaluating these cases. And as far as we are concerned, we have a better chance of winning these cases and these are pending in various forums."

Guidance & Commitments

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