DAM Capital has initiated coverage on Jindal Steel & Power Ltd., JSW Steel Ltd., Tata Steel Ltd., and Steel Authority of India with a 'buy' rating, saying that steel prices have likely bottomed out and demand growth in India is expected to rise.
The set target price on the four companies implies a potential upside in the range of 12-42%, based on the previous closing prices.
Investment Rationale Based On China
Due to the weakness of the property sector, Chinese spreads have fallen to a multi-year low, DAM Capital noted. The country's steel mills are likely to see stricter supply cuts in 2024, which could lead to lower exports and help with supply discipline. This bodes well for the Indian steel sector, which has been hampered by low priced Chinese imports, despite being one of the top producers of steel.
Chinese steel prices have likely bottomed out, the brokerage said. It expects them to rise to $580 per tonne in fiscal 2026 from $490 per tonne right now. This price uptick will consequently be mirrored in Indian steel prices as well. Furthermore, the latest stimulus package announced by China could lead to a price uptick in steel prices—repeating the same cycle seen in 2015-16, DAM Capital said.
Investment Rationale Based On India
Indian steel mills are in a bright spot as new capacities are set to come online, according to DAM Capital. The brokerage expects volumes of JSW Steel, Tata Steel, Jindal Steel & Power and Steel Authority of India to grow by 36%, 21%, 69% and 5%, respectively, over fiscal 2024-27.
It expects leverage ratios of Indian mills to trend down meaningfully, and the sector to benefit from high demand.
Furthermore, given current Chinese steel prices, there is a stronger case for India to enable import protection against rising Chinese steel imports, the brokerage said.
View On JSPL
Highest volume growth currently. Expects 69% growth in volumes over FY24-27.
Expects cost optimisation from coal blocks to help company hit an Ebitda per tonne of over Rs 15,000 by FY27.
View On JSW Steel
The company is most efficient operationally, it said.
Company has a history of double digit volume CAGR; expects 36% volume growth in FY24-27.
Expects high volumes and better cost efficiencies to help company hit an Ebitda per tonne of around Rs 15,000 by FY27.
View On Tata Steel
Expects 21% volume growth from FY24-27.
Expects 29% Ebitda CAGR over FY24-27.
The company could benefit from possible high delta from Europe recovery.
Tata Steel is the lowest-cost Indian steel producer due to captive ore.
View On SAIL
Expects 5% volume growth from FY24-27.
Expects 7% Ebitda CAGR over FY24-27.
Company has the highest degree of operating leverage due to higher fixed costs.
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