Axis Securities upgrades SAIL stock to ’buy’, lifts target price on improving steel spreads | Stock Market News

Stocks to buy: Domestic brokerage firm Axis Securities in its latest note has lifted its rating on the Steel Authority of India (SAIL) to ‘buy’ from ‘hold’ and also lifted the target price to ₹130 apiece from ₹115, citing the improving steel spreads, which it believes will improve the stock’s risk-reward outlook.

According to the brokerage’s calculations, spot spreads have bottomed out and are currently up by 19% from their January 2025 lows, driven by recent HRC price hikes implemented by steel mills. This led to a 6.4% increase in ex-Mumbai HRC prices, rising from ₹47,000 per tonne in the first week of January 2025 to the current spot price of ₹50,000 per tonne in March 2025.

On the other hand, coking coal and iron ore prices have remained soft, with spot prices at $176 per tonne (down 11% from January 2025) and $103 per tonne (up marginally by 3% from early January 2025 levels).

SAIL has higher sensitivity to steel and coking coal prices

The brokerage’s analysis showed that every ₹1,000 per tonne increase in HRC prices would boost SAIL’s EBITDA by 15% (compared to 4% for Tata Steel), while every $10 per tonne decline in coking coal prices would increase EBITDA by 10%.

With the decline in coking coal prices, the brokerage has cut its FY27 coking coal price assumption by 4% ($9 per tonne), while marginally increasing its HRC price estimates for FY26 and FY27 by 0.4% and 0.2%, respectively. As a result, it expects SAIL’s EBITDA to increase by 4% and 13% for FY26 and FY27E, respectively.

Further, the brokerage noted that the company’s total debt declined to ₹32,600 crore from ₹35,596 crore at the end of Q2FY25. SAIL has guided for a further reduction in borrowings to ₹30,500 crore, bringing it in line with FY24 levels. During its expansion phase, the company aims to maintain a debt-to-equity ratio of 1:1; however, execution risks remain as expansion capex is set to begin from FY27 onwards, it noted. 

Steel imports from China see a decline

India has remained a net importer of steel since April 2024, with net imports peaking at 0.7 MT in August 2024. China’s steel exports grew 22% YoY to 111 MT in CY24, a level last seen in CY15 (112 MT in CY15), leading to lower regional steel prices and higher Indian imports.

However, net steel imports have since declined to 0.2 MT in February 2025, following the DGTR probe for the imposition of safeguard duties. On Tuesday, DGTR proposed a 12% safeguard duty on select steel imports for 200 days to protect domestic producers.

“Anticipation of this development was already reflected in the recent price hikes by Indian steel mills in the first week of March 2025. Speculation about the implementation of the safeguard duty, along with cooling imports, led leading steel mills to raise prices for HRCs and CRCs by ₹1,100-1,500 per tonne for March 2025 sales,” said Axis Securities.

Minimal impact on 25% US tariffs on steel

Global rating agency firm, Fitch Ratings expects the 25% tariffs imposed by the US on steel imports to have a limited direct impact on Indian steelmakers’ operations, given their minimal US export exposure.

However, the agency noted that a redirection of steel exports into India from countries with significant exposure to the US market, along with risks to growth in key end-use industries, could pressure domestic steel prices, depending on the severity and duration of the tariff war.

Nonetheless, Fitch expects India’s steel demand to grow by around 10% in FY26, supported by strong public spending and demand from the construction, infrastructure, and manufacturing sectors.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.