Global brokerage firm JP Morgan, in its latest note on steel, said the long-awaited safeguard duty
has finally been announced, which is positive for Indian steel.
Once implemented, import costs could rise by ₹5,500 per ton, but domestic Hot Rolled Coil (HRC) prices may increase only ₹2,000 per ton (4%), depending on demand and restocking.The foreign brokerage expects a complete flow-through to EBITDA and sees scope for consensus and its own estimates to be revised upwards for FY26. However, the extent of improvement remains difficult to estimate.
Steel stocks have been rallying of late, led by optimism around China’s steel output cuts, Germany’s infrastructure fund announcement, and the imposition of a safeguard duty.
JP Morgan expects stock prices to react positively, as the development opens up ample room for imagination around profitability improvement and reinforce the government’s strong intent to support the steel sector.
According to JP Morgan, Tata Steel and JSW Steel are its preferred picks, but it also expects SAIL to witness a sharp positive stock price reaction due to its recent underperformance.
Another brokerage house Emkay Global believes that investors are willing to look through the current downturn, in anticipation of a mid-cycle recovery. “We believe that at some point the interplay of short- and medium-term factors would open the runway to growth and improved profitability for steelmakers.”
Against this backdrop, the brokerage has taken a neutral-to-positive stance on the sector, with a ‘selective picking’ approach instead of going all in.Emkay has a ‘Buy’ rating on Tata Steel, with a price target of ₹185 per share, while it has a ‘Reduce’ rating on Jindal Steel & Power, with a price target of ₹825.
The brokerage recommends ‘Add’ on JSW Steel and SAIL, with price targets of ₹1,100 and ₹120, respectively.
Emkay wrote in its note that it sees better value in non-ferrous over the ferrous space. Aluminium prices are in a strong upcycle, indicating favorable earnings momentum and margins expansion for non-ferrous equities whereas ferrous equity valuations are already pricing in an earnings recovery. Non-ferrous equity valuations appear undemanding in the context of upcycle profitability and return ratios.
Emkay’s top picks, in order of preference, include NACL Industries, Vedanta, Tata Steel, Coal India, and JSTL.
CLSA issued a note on metals before the safeguard duty was announced last night.
Multiple catalysts
According to CLSA, metals demand outlook has improved in the past couple of months on renewed expectation of a China stimulus and an uptick in European demand, helped by infrastructure and defence build-out.
Additionally, capacity cuts in China could be an added plus. The brokerage also expects domestic steel mills to benefit from the safeguard duty.
CLSA remains relatively more constructive on non-ferrous metals and prefers Hindalco and Vedanta. However, it mentioned that a potential risk, a US recession, could weigh on demand.
For JSW Steel, CLSA has raised its price target to ₹825, while for Tata Steel, it has increased the target price (TP) to ₹145.
Further, CLSA said that assuming a 12% safeguard duty, the impact on fair value would be higher for JSW Steel (+7%) and Tata Steel (+10%), given their greater exposure to flat products, while the impact would be relatively muted for JSPL (+3%).
