India’s steel giants have lost around a fifth of their market value in just one month as they scramble to protect their margin against low alloy rates and weak demand, although the drop raw material costs provides some support. And analysts see more pain ahead for investors.
Shares of Tata Steel, JSW Steel, Jindal Steel and SAIL have burned 21-39% of investors’ money in three months.
Tata Steel’s private-to-book (P/B) ratio, for example, is close to levels seen during the global financial crisis – it’s a financial ratio that determines money investors are willing to pay for a share of a company’s assets.
Tata Steel shares are near 2008 global financial crisis lows in P/B terms, JPMorgan says, even as its net debt is 50% lower and India’s capacity doubles, 5.
The fall in steel stocks comes in the middle:
So why does steel fall?
A general risk aversion environment has been the main headwind for steel prices amid nervousness over slowing global growth and aggressive rate hikes by major central banks to combat rising price pressures, Sugandha Sachdeva of Religare Broking told CNBCTV18.com.
“In addition, lockdowns in China have clouded the outlook for steel demand and led to profit booking in the ferrous metal since its peak in March. The US housing market is also signaling signs of a slowdown which don’t bode well for steel rates in the future,” she said.
Higher steel rates hurt the amount of money made on each ton of steel sold by manufacturers.
Many analysts do not expect steel rates to return to recent highs anytime soon.
“Once monetary tightening fears ease and inflation subsides, we may see renewed interest in steel, but we don’t see prices climbing back to the March highs. less in the short term,” added Sachdeva, vice president of commodity and currency research at Religare Broking.
Some even expect a significant correction in rates from current levels.
“All metals are in a downtrend and further weakness of 10-15% is possible from current levels,” said Manoj Kumar Jain, head of commodity and currency research at Prithvi Finmart.
This could spell more trouble for investors with steel-heavy portfolios.
The expansion plans of steelmakers could be impacted if the rights are maintained in the medium term, according to Icra. Nearly 95% of the country’s finished steel export basket was hit with 15% export duties, the rating agency said.
A silver lining is the softer price of iron ore, which partly cushions lower steel rates. Iron ore is a major input in the manufacture of steel.
Analysts see continued pressure on margins for steelmakers over the coming months.
Here’s how brokerages view major steelmakers:
JP Morgan cut its earnings per share estimate for steel giant Tata Group by 34% for the year ending March 2023 and 25% for next year.
Still, analysts’ targets for Tata Steel imply a return of 15-66.5% from Thursday’s closing price.
Analyst targets suggest up to 10% upside for JSW Steel from Thursday.
Motilal Oswal expects coking coal rates to cool down over the next 3-6 months, which will lead to a better margin for the business in the second half of the year ending March 2023.
|Motilal Oswal||To buy||130|
|Motilal Oswal||To buy||440|
|Prabhudas Lilladher||To buy||555|
Girish Pai, head of research at Nirmal Bang Institutional Equities, is cautious on some global commodities stocks.
“Global growth is likely to be under pressure in the near term…I think a lot of global cyclical stocks will be under pressure and the China-related situation around COVID will also put pressure on some global commodities,” he said. -he declares. CNBC-TV18.