Nuvama reports that the stock is overvalued and has reduced its target price by 25%.

News Topical, Digital Desk : State-owned steel company Steel Authority of India Ltd. (SAIL) has received a blow from brokerage firm Nuvama. On Thursday, December 18, Nuvama downgraded SAIL shares from 'Hold' to 'Reduce' and also cut its target price by 25% from ₹141 to ₹106.

Based on Wednesday's closing price, Nuvama's new target implies a potential downside of approximately 18% for SAIL shares. The brokerage has also cut the company's EBITDA estimates, factoring in weak steel prices. Nuvama has reduced its EBITDA estimates for FY26, FY27, and FY28 by 17%, 13%, and 13%, respectively.

Expecting pressure on profits , Nuvama estimates that SAIL's EBITDA could decline by approximately 30% on a quarter-on-quarter basis in the December quarter. The company's EBITDA per tonne could be approximately ₹1,400 lower than in the June quarter. According to the brokerage, at the current price, SAIL shares are trading at 6.9 times the estimated enterprise value-to-EBITDA for FY27 and FY28, which Nuvama considers expensive valuation.

Capex will increase debt burden.

SAIL is soon going to start work on the 4.5 million tonnes per annum (MTPA) IISCO expansion project. According to Nuvama, the capex related to this expansion could further increase the company's debt burden, which could be a negative factor for the stock.

Weak return ratios a cause of concern.

Nuvama also cited SAIL's weak return ratios as a major reason for the downgrade. The brokerage expects the company's return on equity (RoE) to be 3.2% this financial year, 6.4% in FY27, and 6.5% in FY28, which is not considered attractive.

Analysts' views are also cautious
Out of 30 analysts covering SAIL, 14 have a 'Sell' rating, 12 have a 'Hold' rating, while only 4 analysts have a 'Buy' rating. Based on the consensus target price, the stock does not see any significant upside at present. SAIL shares were trading down about 2% at ₹127.55 on Thursday. However, the stock has gained about 13% so far in 2025.

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