Had a conversation with a senior ex-colleague who now runs a PEB company. Man, the steel price situation is hitting them bad.
HRC was 48 Rs/kg a few months ago when they booked these orders, its now 58 Rs/kg. Steel is > 70% of the cost so one can imagine what happens to the margins.
Now they’re stuck executing orders they’ve booked months ago at old prices. He says, for customers who’ve paid advances more than 30%, they’re honouring the contracts and just taking the hit. For the rest, they’re giving the advances back.
The best PEB companies can do is clone APL Apollo’s bulk discount based procurement model which will take a long time to happen anyway, if it ever happens. APL’s current annual revenue is more than 10 times Interarch’s. Scale is key here.
Is it ? What is known until now is no PEB Player including pennar produce its own steel raw material. They procure it from major steel producers. They don’t even procure iron ore, rather iron ore converted into steel sheets, plates and coils.
That’s why we are seeing massive valuation correction in PEB Stocks.
What I feel is If steel prices rise exorbitantly and continuously then these stock will see more downside as market will be anxious of more margin compressions in future. But if the steel prices (dont fall) and just stabilize in 2026 then also the PEB companies which are planning for heavy capacity expansion in fy27 will see growth in their profits.
As of now tier 1 companies like interarch, they are too experienced to handle such fluctuations, and I’m sure this issue is not new to them, they have successfully been through such fluctuations in past and with that experience, today they have strategies to mitigate steel price volatility. They have now managed to maintain steel inventory at old (less prices) for 2 months and also there orders with major steel producers in also lined up at old steel prices for 2 months, in total they have 4 month inventory at old steel prices, which not just helps them to tackle current rise in steel prices on existing orders but also helps them to book new orders at fresh hiked steel prices.
Q3 FY26 Was great quarter, rest lets see how Q4 FY26 Goes, to understand whether company is actually able to mitigate steel volatility risk ?
Disc : I’m not a SEBI registered analyst, but invested and maybe biased.
A greenfield 1 MTPA steel plant costs a few thousand crores, that’d be substantially higher than all PEB fixed assets combined. It wouldn’t even make economic sense to set up a smaller plant. On the other hand, a few of us can collectively fund and set up a small PEB plant (say 5000 TPA) which requires a few crores of investment. Why would you think they can produce steel for captive use?
APL Apollo is a converter with economies of scale and distribution moat, Interarch is an EPC player. Not a like to like comparison tbh. By the way, APL Apollo also has a PEB division -
