The Indian price of HRC (hot rolled coil) has been corrected from a peak of Rs 57,500 per tonne in January 2021 to Rs 53,500 per tonne in March 2021. Image: Reuters
Steel prices in India have returned to their January 2021 high, and Jefferies India believes there is more room for pricing. The rebound in steel prices in Asia has not only allayed concerns about the short-term viability of Indian prices, but the brokerage firm believes it now has more room for maneuver. The Indian price of HRC (hot rolled coil) has risen from a high of Rs 57,500 per tonne in January 2021 to Rs 53,500 per tonne in March 2021, but has now recovered. Indian steel prices could rise further thanks to good domestic demand and the possibility of diverting volumes to exports.
Jefferies has recommended “buying” Tata Steel and JSW Steel and sees up to a 30 percent rise in stock prices. It remains positive on Indian steel in a solid pricing environment. “If Indian / European steel spot prices hold, we see an additional 66% / 30% increase in FY22 EBITDA for Tata Steel / JSW Steel, an FCFE yield of 28% / 6% and a Net debt down 30% / 8% year-on-year, “It said.
Tata steel: Jefferies India gave a target price of Rs 1,125 coin, implying a 28.6% rally in the share price from the previous close. He estimates that if spot prices hold in India or Europe, Tata Steel can deliver FY22 EBITDA of Rs 60,000 crore, or 66% of its base case. The recovery in global and Indian demand and prices for steel is generating strong margins for Tata Steel. “The availability of captive iron ore in India is a bright spot amid high global ore prices,” he said. Jefferies also noted that European business (Tata Steel Europe) has been a drag, but even here prices are picking up and Tata Steel Europe’s share of Tata’s total volumes has fallen over the years. Tata Steel stock has outperformed Nifty by 30% so far this year and 20% since last week.
JSW steel: At Indian steel spot prices, JSW Steel’s FY22 EBITDA is expected to reach Rs 32,000 crore, or 30 percent above its baseline. Its target price was Rs 600 each, but JSW Steel has already exceeded that level on Thursday. The shares were locked in a top 10 percent circuit of Rs 618.50 each. According to the brokerage firm, the start of the brownfield expansion of 5 million tons per year and the improvement in steel prices are expected to lead to strong revenue growth. Additionally, a shift in iron ore supply to captive mines will likely drive up costs, but margins are expected to improve further.
(The stock recommendations in this article are made by the respective research and brokerage firm. The Bharat Express News Online assumes no responsibility for their investment advice. Please consult your investment advisor before investing.)
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