Steel companies: Steel companies are attractive in terms of risk-reward and possible upgrades: JPMorgan
The brokerage has an overweight rating on SAIL with a target price of ₹165. On Tata Steel, JPMorgan has an overweight rating with a target price of ₹1,850. The brokerage also has an overweight position in Hindalco Industries and NMDC, with target prices set at ₹605 and ₹210, respectively.
“We continue to see consensus upside earnings risk for the sector in general and steel in particular, given that regional HRC steel prices have not dipped below $800/ton even at the low point. from CY21 and that gradually with demand expected to improve further in the first half both locally and globally, steel prices are expected to rise,” JPMorgan said.
He noted that domestic steel stocks have underperformed their global counterparts by an average of 11-15% over the past one to six months. Ebitda or Earnings Before Interest, Taxes, Depreciation and Amortization per tonne for steelmakers likely peaked in the June quarter of FY22 and the companies were also exposed to coking coal price inflation. Thus, the margins of Indian steel companies have fallen.
JPMorgan noted that domestic steel demand is seasonally strong in the March and June quarters.
The brokerage said that with the outlook for global growth robust and supply, particularly in China, not expected to increase significantly, the outlook for base metal prices remains strong.
“While steel has lagged base metals over the past three months, as the European energy crisis has impacted base metals relative to steel, where the sharp slowdown in Chinese demand in the December quarter negatively impacted steel prices…Chinese demand should improve from December quarter lows and support steel prices,” JPMorgan said.