Indian steel prices are back to January 2021 high and Jefferies India believes that there is more headroom for the prices. The rally in Asian steel prices has not only eased concerns on near-term sustainability of Indian prices but the brokerage firm believes that it now provides room for more upside. Indian HRC (hot-rolled coil) price has corrected from a peak 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 may rise further on the back of good domestic demand and the option to divert volumes to exports.
Jefferies has recommended to ‘buy’ Tata Steel and JSW Steel and sees up to a 30 per cent rally in the stock prices. It remains positive on Indian steel amid a strong price environment. “If Indian/EU spot steel prices sustain, we see further 66%/30% upside to FY22 EBITDA for Tata Steel/JSW Steel, FCFE yield of 28%/6% and net debt falling 30%/8% in the year,” it said.
Tata Steel: Jefferies India has given a target price of Rs 1,125 apiece, implying 28.6 per cent rally in the stock price from the previous close. It believes that if spot prices sustain in India or Europe, then Tata Steel can deliver FY22 EBITDA of Rs 60,000 crore, which is 66 per cent of its base case. The recovery in global as well as Indian steel demand and prices is driving strong margins for Tata Steel. “Availability of captive iron ore in India is a positive amid elevated global ore prices,” it said. Jefferies also noted that European business (Tata Steel Europe) has been a drag but even here prices are recovering and Tata Steel Europe’s share in Tata’s total volumes has fallen over the years. Tata Steel stock has outperformed Nifty by 30 per cent so far this year and 20 per cent since last week.
JSW Steel: At spot Indian steel prices, JSW Steel’s FY22 EBITDA should rise to Rs 32,000 crore, which is 30 per cent above its base case. Its target price was Rs 600 apiece, but JSW Steel has already surpassed this level on Thursday. The shares were locked in a 10 per cent upper circuit of Rs 618.50 apiece. According to the brokerage firm, the start of the 5mtpa brownfield expansion along with improving steel prices should drive strong top-line growth. Moreover, a shift in iron ore sourcing to captive mines is likely to push up costs but margins should still improve.
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