ICICI Direct - Sector Update - Steel

Domestic steel prices have witnessed strong traction over the last eight to nine months, registering a sharp increase in the aforementioned period. Currently, domestic hot rolled coil (HRC) prices (ex-Mumbai) are at Rs. 62500/tonne, up 71% from the July 2020 low of Rs. 36500/tonne. Healthy traction was witnessed in international steel prices also. Over the last three months, Chinese steel HRC export price has increased by 35% to US$890/tonne in April 2021 from US$660/tonne in January 2021. Healthy demand both on the global as well as domestic front has aided this uptick in steel prices auguring well for steel players.

Valuation & Outlook

Domestic steel players are currently in a sweet spot on the back of a) continued strength in steel prices both on the global and domestic front, b) operating at healthy capacity utilisation levels on the back firm demand, c) balance sheet improvement on the back of debt repayment exercise undertaken by domestic players. We value Tata Steel on an SoTP basis and arrive at a target price of Rs. 1150 (earlier target price of Rs. 750), upgrading Tata Steel from HOLD to BUY. We value SAIL at 5.5x FY23E EV/EBITDA and arrive at a target price of Rs. 130 (earlier target price Rs. 90), maintaining our BUY recommendation. We value JSW Steel at 6.5x FY23E EV/EBITDA and arrive at a target price of Rs. 675 (earlier target price Rs. 400), maintaining HOLD recommendation on JSW Steel.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Steel_SectorUpdate_Apr21.pdf

Source : Equity Bulls

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