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Steel Players: Cheap Steel Imports has weighed on realization and profitability, Guides for better performance in H2FY25

ICICIdirect Research 08 Nov 2024 DISCLAIMER

Majority of players reported a decline in sales realization in the range of ~₹2,000 to ₹6,000 per ton, with the steepest decline witnessed by JSW Steel.

Overall, the trend in operating performance was mixed, JSW Steel managed to maintain an EBITDA/ton at ₹8,700, whereas Tata Steel and JSPL saw a sequential declined by ₹800/ton and ₹3,000/ton, bringing to EBITDA/ton ~₹13,000 and ₹10,400, respectively. Notably, SAIL was the only player to report an improvement in EBITDA, which rose by ₹1,550/ton, reaching to ~₹7,000/ton in Q2FY25.

All players have guided for better performance in H2FY25 driven by increased capex from the government and private players, along with a rural recovery supported by an improved monsoon season.

JSW Steel and JSPL have implemented a price hike in the domestic market across both flat and long products, in the range of ₹1,000 to ₹2,000 per ton, with effective from October’24. Tata Steel has also raised prices for flat and long products in the same period.

Expectation of major stimulus package from China are a key positive trigger for domestic steel players, given that steel imports in domestic market has increased by 41.3% YoY to 4.7 million tons in H1FY25, with China accounting for 31% of the total imports. Thus, any positive surprises from the stimulus could provide a relief to domestic steel players.

Within the steel universe, we prefer JSW steel due to its ambitious growth plans, superior product portfolio and healthy profitability outlook. We maintain a BUY rating on the stock, thereby valuing at ₹ 1,130 i.e. 9x Avg. FY26E-27E EV/EBITDA.

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