In the previous two years, several steel stocks have surged up to eight times. Analysts believe that two equities, Tata Steel and Jindal Steel & Power (JSPL), can deliver more, citing export potential from Europe.
This is despite ongoing worries about growing raw material costs, which steelmakers must pass on to consumer industries sooner rather than later, according to experts. Jindal Steel shares have increased 8.4 times since early April 2020, while Tata Steel shares have increased 5.3 percent within the same period.
Tata Steel has a consensus target price of $23 per share, implying a possible 23% gain. Another such objective of Rs 574.71 on Jindal Steel implies a modest 9% gain. Motilal Oswal’s most recent research on this stock set the company’s target price at Rs 605.Â
“This theme (steel) will last for six months to a year. Nobody knows where the battle will go. Because the market does not respond to the same news again, Indian markets have likewise ceased reacting to the war news. Make the most of the sun while it’s shining.
Yes, this (steel) theme might play out in the next six months to a year.” Centrum Wealth Management’s Devang Mehta Russia and Ukraine are the EU’s main steel suppliers, but Russia is also a significant source of coking coal and natural gas, raising worries about cost inflation.Â
Steel prices continue to grow, particularly in Europe, where they are up 50% month on month due to increasing energy costs. According to Edelweiss Securities, growing covid-19 infections in China’s Tangshan area have harmed crude steel output.Â
According to the report, the silver lining for local steel businesses is the chance to export hot rolled coils (HRC) to Europe at a substantially higher realisation of $1,300 per tonne. In reality, local steel businesses do not even supply material in Southeast Asia, according to the report.Â
“We remain bullish on ferrous and continue to recommend JSPL (target: Rs 637) and Tata Steel (target: Rs 1,695) as top selections in the category,” Edelweiss stated.Â
Russia and Ukraine accounted for 21% of EU steel imports in 2020 and 2021, and the continued conflict might cause steel prices in the EU area to skyrocket. “This also offers up new export potential for Indian steel companies.
These variables seem to be at work as well, in our opinion “According to Nomura India.Â
At the same time, disruptions in Russian coking coal supplies, which account for 10% of world commerce, and natural gas supplies (which account for 41% of EU supply in 2019), might result in input cost inflation for both blast furnaces (BF) and electric arc furnaces (EAF) (EAF).Â
According to Edelweiss, key steel manufacturers have raised prices by Rs 1,500 per tonne for flats and Rs 1,250 per tonne for longs on average. Furthermore, due to the persistent high price of coking coal, steel players are using the force majeure provision in contracts.Â
“While the traders’ market has scarcely responded, since it is functioning at a premium of Rs 2,000 per tonne, we notice that the price increases are being absorbed mostly because imports remain unviable.”
While margins in Q4FY22 look to be largely steady owing to decreased inventory costs, we envision margins in H1FY23 being hit if coking coal prices remain high,” Edelweiss said.Â
IIFL indicated that it favours steel players with raw materials integration, such as JSPL and Tata Steel, even if it reduces its target multiples to reflect the uncertainty. This brokerage has a Rs 1,592 target on Tata Steel and a Rs 604 target on JSPL.Â
Tata Steel was trading at Rs 1,354 per bit on Friday. JSPL is now trading at Rs 530.60 per share. According to analysts, although exports are a possibility, 3.54 million tonnes of steel exports to the EU account for just 3% of Indian production.Â
“With some easing of EU import quotas in March, Nomura anticipates Indian steel shipments to the EU to increase but would still account for less than 5% of Indian output in FY23.” As a result, we believe domestic price increases are critical for the steel industry’s healthy Ebitda margins,” Nomura added.Â
Sudip Bandyopadhyay of Inditrade Capital noted that JSPL and even Tata Steel appear promising, even at current levels, provided one has a somewhat longer-term view in mind.
Published By – Damandeep Singh
Edited By- Kritika Kashyap
