Surya Roshni · risk themes across the available quarters.
Bear-case history
Oil & gas sector API pipe volumes declined 35% YoY in Q3, impacting ~₹89 crore of steel EBITDA. While management expects Q1 FY27 recovery with Jal Jeevan Mission tenders, the timing remains uncertain and analyst questioned whether weakness extends 2-3 quarters.
Analyst raised concern that EBITDA has been flat for 3 years and management has consistently missed guidance targets. Steel EBITDA margin at ~₹4,800-4,900/ton is below historical levels, with management acknowledging headwinds from HR coil pricing and selective order avoidance.
~10,000 tons annually of European exports face disadvantage from CBAM; management offsetting via Middle East and Africa expansion but incremental costs remain. Analyst also raised green steel certification as potential mitigation requiring renewable energy adoption.
Multiple analysts pressed on shareholder returns via buyback or de-merger given accumulated cash surplus and zero-debt status. Management acknowledged suggestions as valid but provided only verbal commitment to interim dividends and board discussions without concrete timeline.
Steel segment EBITDA per ton has declined from ₹12,000 in FY23 to ₹5,600 in FY26, the lowest since FY21. While management attributes this to tender business competition and government spending pressure, the sustained margin compression raises questions about the sustainability of volume growth strategy.
This marks the third consecutive quarter where management's export volume guidance has not been achieved. Q4 saw 12,000 tons lost due to Middle East crisis, following Q1 SAP implementation setback. Management has provided conservative guidance for FY27 but analyst questioned whether systematic execution gaps exist versus market factors.
Despite ₹55,000 crore Jal Jeevan Mission budget, only ₹3,000 crore has been disbursed through FY26, limiting demand recovery from government-linked water infrastructure spending. Management expects continued pressure on government-dependent business (15-16% of volumes) through FY27.
The proposed demerger of lighting and consumer durable business has no definite timeline. Management stated it would update shareholders after the next board meeting but emphasized external environment is 'not friendly' for corporate actions, leaving the strategic restructuring indefinitely deferred.