Stocks to Buy: Tata Steel, JSW Steel, Jindal Steel & Power among top bets in metal sector

The Indian economy is expected to grow at a much higher rate relative to the world and the government’s continued strong push to infrastructure capex is expected to boost domestic steel demand. India’s metal sector stands to benefit with the strong domestic economic growth and gradual global recovery.

Indian steel consumption is expected to grow strong 9% to 142 mt over FY23- 25E led by government’s strong focus on building infrastructure, recovering automobile industry volumes with rising affordability and electrification trend, rising urbanization driving strong volumes in realty sector and increasing private capex utilization across industries.

According to a report by brokerage firm Prabhudas Lilladher, Indian steel companies are expected to add ~22 mt of capacities over next two years and drive volume growth. 

The brokerage house believes global steel prices are bottoming out and can show uptick if there is gradual recovery in demand.

Indian steel demand (ex-China) as a proportion of world demand is inching up consistently from 10% in FY18 to 14% in FY23 and can reach 19% in next 5 years. 

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With improved supply conditions, coking coal prices are expected to moderate and drive EBITDA margin improvement for steel players. 

The brokerage believes JSW Steel, Jindal Steel & Power Ltd (JSPL) and Tata Steel are well placed to benefit from upcoming capacities. With the government’s increasing shift towards using stainless over carbon steel, usage has increased in India benefiting Jindal Steel.

“Hindalco Industries is the biggest beneficiary of gradual recovery in developed nations driving CAN sheet volumes. NMDC is improving its focus on volumes while National Aluminium Company and SAIL would be pure play on prices,” Prabhudas Lilladher said.

The brokerage expects the top four steel majors, namely JSW Steel, Tata Steel, JSPL and SAIL, to continue gaining market share as they are adding capacities to cater to this strong growth. While it estimates incremental production at 10.9 m tons in FY24 and 10.6 m tons in FY25; incremental demand is expected at 11.9 m tons in FY24 and 10.5 m tons in FY25.

“Strong demand is expected to keep prices higher in Indian markets, if there is no further meltdown in China and incremental exports remain limited. As there is expectation from China to curtail production in 2HFY24, we believe global steel prices to get support from here and domestic companies to be major beneficiaries of the same,” the brokerage said.

Check out the stock to buy in the steel sector according to Prabhudas Lilladher:

JSW Steel | Buy | TP: ₹926

Prabhudas Lilladher initiated coverage on JSW Steel with a ‘Buy’ rating and target price of ₹926 per share based on 7x FY25EV/EBITDA. It believes JSW Steel is well placed to capitalize on strong volume growth in domestic markets over next two years

Over the last two decades, JSTL has grown its capacity at a robust 15% CAGR and also gained good market share. With GoI’s focus on infrastructure and overall stronger domestic economy, steel demand is expected to remain high in the next few years wherein JSTL would be a key beneficiary, it said.

Tata Steel | Buy | TP: ₹137

The brokerage initiated coverage on Tata Steel with ‘Buy’ rating and SOTP based target price of ₹137 per share. 

“We believe Tata Steel India (TSI) is well placed to capitalize on strong volume growth expected in domestic steel markets, while Tata Steel Europe (TSE) is at an inflection point as the UK decision is nearing. We believe earnings leakage on consolidated level would stop, even in case of an adverse decision,” it said.

It expects solid earnings growth over the next few years given multiple factors. 

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Jindal Steel & Power | Buy | TP: ₹812

Prabhudas Lilladher believes JSPL is well poised to take dual benefit of strong volume growth and improvement in product mix over FY23-25.

It expects Revenue, EBITDA and PAT CAGR of 12%, 16% and 24% over FY23-25E. 

The brokerage has a ‘Buy’ rating and target price of ₹812 assigning 6x EV to FY25E EBITDA. 

Jindal Stainless | Buy | TP: ₹484

Prabhudas Lilladher initiated coverage on Jindal Stainless with a ‘Buy’ rating and target price of ₹484 based on 6.5x FY25EV/EBITDA. 

It expects Revenue, EBITDA and PAT growth of 16%, 30% and 33% over FY23-25E. The stock is currently trading at 6.9x/5.7x EV of FY24E/FY25E EBITDA, the brokerage house said.

Hindalco Industries | Buy | TP: ₹557

The brokerage firm has a ‘Buy’ rating on Hindalco Industries and an SOTP based target price of ₹557 per share. 

It expects consolidated EBITDA CAGR of ~10% over FY23-25E and similar EPS growth on flattish LME price assumptions and Novelis FY25E EBITDA of $500/t. The stock is currently trading at 6.1x/4.9x EV of FY24E/FY25E EBITDA, it said.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.