Sambhv Steel Tubes Ltd. - Mid-Metamorphosis and Mispriced - Initiating Coverage

We initiate coverage on Sambhv Steel Tubes with a BUY rating and target price of Rs 150. There is a moment in every emerging industrial story where the balance sheet still looks familiar, but the trajectory no longer does. Sambhv is standing exactly there, in the middle of a Dual-engine scale-up: a stable, geographically advantaged, and economically predictable structural pipes franchise, and a high-growth stainless-steel (SS) flat products platform. The Phase-1 Kesda expansion (360kt SS coils; Q4 FY27 launch) fundamentally alters the company’s earnings mix, moving SS to ~60% of revenues by FY28 and lifting EBITDA/t materially, aided by BIS restrictions and a ~1mmt import substitution gap. Revenue and EBITDA more than triple, PAT more than quadruples, asset turns recover meaningfully, and ROE steps from 12% to ~20%. We expect rerating of this company on successful SS execution and ROE upliftment.

Industry Setup is Accretive to the Strategy:

Structural steel tubes continue to compound at double-digit rates with Industry estimates expecting 18% CAGR in HR-coil-based structural tubes over CY23-30 driven by infrastructure, solar structures, urban verticalization, and the substitution of RCC with fabricated steel. Stainless Steel demand is expected to grow by ~10% CAGR over FY25-30 driven by consumer shifts, critical applications and BIS slab norms leading to import substitution. India’s SS per-capita demand is still half the global average. In short, both of Sambhv’s operating legs sit in demand pools that are structurally expanding faster than GDP as well as steel.

Integration the prevalent MVP:

Sambhv runs a single-geography, end-to-end DRI-route steel platform: sponge → billet → HRC → ERW/CRC → GP coils/pipes, supported by 25 MW (WHRB+AFBC) captive power which is being further expanded by 25MW for the upcoming plant. Integration cushions volatility for Sambhv i.e. HRC self-manufacture continues to earn a ~Rs3-3.5k/t higher spread vs outsourced coil, GP adds a structural Rs1.5k uplift over ERW, captive power neutralises tariff shocks, and the raw-material footprint remains tight within Chhattisgarh’s mineral grid. The evidence is visible; H1 FY26 delivered Rs5.9k/t MS EBITDA despite volatile HRC prices and monsoon disruptions.

Stainless Steel expansion augments growth:

FY25 marked Sambhv’s entry into SS with the commissioning of HR + CR lines (58kt in FY25 to 116kt in FY26). Phase-1 of the Kesda project will add 360kt of SS melt-roll capacity by end of FY27. SS is not just incremental capacity; it structurally changes the earnings profile. SS EBITDA/t is Rs12-14k (2-3x of MS) while similar on margins (%). The company already commercialized 202/204 and is stabilizing 304; 316 follows taking total SS share in mix to ~60% by FY28. The flip side is that higher the SS contribution, the more the valuation starts looking like Jindal Stainless (which the street values at ~9x FY28 consensus EBITDA). The only way Sambhv avoids being pulled down into SS-peer valuation gravity is by delivering much higher earnings growth than JSL and our math implies ~65% FY25-28E PAT CAGR. The rerating argument is not speculative, but conditional on flawless execution.

Economics in motion:

Gross margin holds stable between 28-29% even as absolute spreads float with the steel cycle. Asset turns recover from 1.3x to 1.9x as SS throughput scales. EBITDA more than triples from Rs1.5bn in FY25 to ~Rs5.5bn in FY28. ROE lifts from 12% to 20%, leverage remains moderate with Phase-1 Kesda capex (Rs9.35bn) funded through a judicious mix of internal accruals and debt. Net-debt-to-equity cools from 1x in FY25 to ~0.6x by FY28.

Valuations, view & risks:

We expect the company to deliver 49%/52%/65% Revenue/EBITDA/PAT CAGR between FY25-28E. We Initiate coverage on Sambhv with a BUY rating valuing it on SOTP framework assigning 13x MS EBITDA, 7.5x SS EBITDA to arrive at a target price of Rs 150/sh. Key risks centre on execution and ramp-up at Kesda, volatility in SS grade acceptance and spreads, and the possibility that rising leverage during capex cycles delays the ROE proof-point required for a re-rating.

Company website: https://www.sambhv.com/

Click to download the full Sambhv Steel Tubes Ltd. IC Report

Analyst: 

• Sahil Sanghvi - Research Analyst, Institutional Equities (NISM-201900004744)
• Uvais Khatri - Research Associate, Institutional Equities (NISM-202300049054)

Frequently Asked Questions (FAQs)

Sambhv Steel Tubes is undergoing a strategic transformation from a conventional structural pipes player into a dual-engine steel platform. Below are key questions investors are evaluating.

What is driving the investment thesis for Sambhv Steel?

The company is benefiting from strong demand in structural steel pipes and a structural shift into higher-margin stainless steel products, supported by integration and import substitution.

Why is the stainless steel expansion critical?

Stainless steel delivers 2–3x higher EBITDA per tonne versus mild steel and will contribute ~60% of revenues by FY28, materially improving margins, asset turns, and ROE.

How does integration protect profitability?

Sambhv’s end-to-end DRI-based setup and captive power reduce raw material and energy volatility, enabling stable spreads even during steel cycles.

What could trigger a valuation re-rating?

Successful commissioning and ramp-up of the Kesda stainless facility, earnings delivery, and ROE expansion toward ~20% are key re-rating catalysts.

Further Reading for Long-Term Investors:

• Read our detailed Equity Research reports in coverage universe