Poor execution, higher debt may take wind out of SAIL's plans

 At a time when investing in capacity expansion is seen as a strategy for long-term revenue growth, Steel Authority of India Ltd’s (SAIL) expansion plans appear to have made investors anxious.

- Dipti Sharma

The worry is that the steelmaker’s expansion plans would lead to significantly higher capital expenditure (capex) thus keeping debt high in the coming years. This could explain why SAIL’s shares have underperformed so far in 2023, gaining 10% compared to 14% rise in the Nifty 500 index.

The company’s management is evaluating various expansion plans including modernization and removing of bottlenecks in the business. As mentioned in its September quarter (Q2FY24) earnings call, SAIL is planning to take initiatives to improve utilization of its existing assets. This would be led by some minor investments, greenfield expansion of IISCO steel plant, and some brownfield expansions that will take place in Durgapur and Bokaro steel plants.