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Indian steel stocks are not yet factoring in spread expansion, Macquarie says, adding that domestic steel prices will remain on an uptrend with further hikes in May 2018.
Deutsche Bank (DB) says Indian steel companies had raised domestic steel prices by $12-$15 per tonne in May 2018. It adds that rising domestic steel prices and declining raw material prices have resulted in Indian steel spreads increasing by 18 per cent over last three months.
Macquarie says stocks are not yet factoring in the spread expansion and upside risk in earnings. DB says rising spreads on the back of increasing demand will help domestic steel players achieve robust profitability and JSW Steel Ltd is its preferred pick in the sector.
Macquarie believes Tata Steel Ltd offers best risk reward, adding cost inflation impacts co the least. It adds with stronger prices and downtrending raw material prices, Q1 2019 margins could see another $20/tonne Q-o-Q expansion and drive the earnings upgrades.
Macquarie retains 'outperform' on Tata Steel and JSW steel; DB maintains 'buy' on JSW Steel. About 23 of 32 analysts covering JSW Steel rate it “buy” or higher with a median price target of Rs 323.50, while 25 of 30 analysts recommend 'buy' or higher rating for Tata Steel with a median price target of Rs 818.94, according to Thomson Reuters data.
Tata Steel has lost about 10 per cent this year up to Monday's close, while JSW Steel has gained about 21 per cent.
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