SAIL expects Rs 50,000 crore internal expansion funding

Steel Authority of India Limited (SAIL) expects about Rs 50,000 crore of internal accruals over four years for an expansion from 20 million tonnes to 35 million tonnes. Management said total capital expenditure could reach Rs 1,00,000 crore to Rs 1,20,000 crore, with debt covering the remainder and a follow-on public offering possible.

How will SAIL finance its 35 million-tonne expansion?

SAIL plans to use around Rs 50,000 crore of internal accruals and finance the remaining requirement through debt. Management discussed a total capex range of Rs 1,00,000 crore to Rs 1,20,000 crore, which implies Rs 50,000 crore to Rs 70,000 crore of funding beyond the indicated internal-accrual contribution.

Management said borrowing would be added according to incremental requirements and the progress of execution at project sites, rather than raised in a single transaction. It expects capex to become bunched toward the end of the programme, when debt requirements would also increase, while proceeds from a follow-on public offering, or FPO, may be available before that stage.

SAIL said it aims to reduce dependence on loans by improving profitability through top-line measures and cost reductions. Management did not provide a debt target, an FPO amount, a timetable for an equity issue, or a committed funding mix beyond the indicated Rs 50,000 crore of internal accruals.

What is SAIL's capex schedule through FY30-31?

SAIL guided for Rs 15,000 crore of capex in the current year, more than Rs 20,000 crore in the following year, and Rs 25,000 crore in the next year. Management described Rs 1,20,000 crore of spending from FY26-27 to FY30-31 and said annual capex could rise above Rs 30,000 crore or Rs 35,000 crore in the final two years.

The current-year spending profile is weighted to the second half. SAIL reported Rs 5,500 crore of capex in H1 and said Q3 and Q4 together could contribute Rs 9,000 crore to Rs 10,000 crore, against the full-year guidance of Rs 15,000 crore.

Management said IISCO Steel Plant would account for the majority of next year's expansion-related spending, alongside normal capex at other steel plants. Bokaro is expected to follow from the next-to-next year, then Bhilai Steel Plant, while Rourkela remains the potential fourth location subject to approval.

Which plants are included in SAIL's expansion plan?

SAIL is pursuing the increase from 20 million tonnes to 35 million tonnes across four plants over the next four years. Management identified IISCO as the first project, said Bokaro was in tendering, and said tendering for Bhilai was yet to begin; Rourkela may be the fourth plant once approvals are obtained.

Management said the expansion land at the four locations was free of encroachment. At Rourkela Steel Plant, most encroachment had been cleared and a small remaining patch was being cleared with state-government support, which management described as work under way rather than a completed approval condition.

IISCO's major orders have been placed and work has begun on the ground, management said. It added that the normal period from board approval to placing packages is about six months because of internal systems and procedures, although IISCO had taken longer before its major equipment orders were placed.

How does iron ore output support SAIL's expansion plan?

SAIL expects iron ore production of about 48 million to 50 million tonnes this year, compared with around 38 million tonnes last year. That revised expectation is below the original 56 million-tonne target, although management said H1 production of about 20 million tonnes should be followed by higher output in the dry season.

Management has set an ambitious target of 100 million tonnes of iron ore in FY30-31 or FY31-32, while saying output of 80 million to 85 million tonnes may be achieved if the higher target is missed. The plan relies on Rowghat, Gua, Bolani, Kalta and Taldih and excludes Chiria because of separate clearance and other issues.

At Rowghat, interim mining has environmental clearance for 3 million tonnes and current output is around 2 million tonnes. Management said the main mine developer and operator phase could begin in more than one year, followed by a staged rise toward 14 million tonnes over three to four years; Gua is planned to rise from 4 million tonnes to 10 million tonnes, subject to clearances.

What could affect SAIL's internal-accrual plan?

SAIL's internal-accrual expectation depends partly on management's efforts to improve profitability through revenue and cost measures. In October, net sales realisation was Rs 58,700 per tonne for long steel and Rs 61,700 per tonne for flat steel, around Rs 4,000 per tonne above the Q2 average of Rs 55,500 per tonne.

Imported coking coal is a cost variable for that plan. Management said the Q2 average was Rs 22,930 per tonne and expected Q3 to average about Rs 23,800 to Rs 23,900 per tonne, an increase of about Rs 1,000 per tonne, after prices rose amid geopolitical conditions and demand in China.

SAIL also made a labour-code provision of Rs 350 crore overall, including Rs 198 crore in the quarter, recorded within other expenses. Management said this was a best estimate because the final industrial rate had not been notified and could be adjusted; employee numbers were 48,000 at the end of Q2 and are expected to be about 46,000 at year-end.

Conclusion

SAIL has outlined a phased financing framework for its 20 million-tonne to 35 million-tonne expansion: about Rs 50,000 crore of internal accruals, debt raised alongside execution, and a possible FPO before spending becomes concentrated. The framework connects funding needs to projects at IISCO, Bokaro, Bhilai and potentially Rourkela rather than to a single upfront financing event.

The next items to watch are IISCO execution, Bokaro tendering and Rourkela approvals as capex rises from Rs 15,000 crore this year to more than Rs 20,000 crore next year. Management's 48 million- to 50 million-tonne iron ore production expectation, its Q3 coking-coal estimate of about Rs 23,800 to Rs 23,900 per tonne, and any specific FPO decision will help determine the eventual debt requirement.