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A touch of metal stocks has given a shine to investors’ portfolio with the rise in steel prices in the last one year. Sample this: shares of Jindal Steel and Power (JSPL) climbed 351% to Rs 370.55 on April 1 this year from Rs 82.20 on March 31 last year. The rally indicates that an investment of Rs 10,000 in the stock last year is now valued over Rs 45,000.
JSW Steel, Hindalco, Steel Authority of India, Vedanta and Tata Steel have also risen over 200% during the same period. Overall, the domestic steel players have increased the prices by Rs 4,000-5,000 per tonne with the rise in demand as the Chinese have stopped supplying to Vietnam. This has increased exports by the domestic players.
Speaking about the factors that aided the metal sector, Jyoti Singh, Research Analyst, Retail Equity Research at Nirmal Bang Securities said, “The Indian steel industry rebounded strongly from the Covid-19 disruption and the steel prices rebounded to a multiyear high of Rs 57,000 in January 21 led by the strong demand recovery from the auto sector and impetus by the government on infra led projects.”
Earlier, the domestic steel industry witnessed a decline in the first half of FY21 due to the nationwide lockdown, however with the easing of lockdown and pent up demand from the auto and constructions sector mills ramped up capacity utilisation to over 90-95% towards the end of the year from 30-40% in April 20.
Among the other top performers from the sector, National Aluminium, Hindustan Zinc have gained 102% and 81%, respectively, since the beginning of FY21. On the other hand, BSE Metal and Sensex have advanced 165% and 70%, respectively, during the same period.
Going ahead, analysts believe that the current steel prices to sustain due to robust domestic fundamentals and strong export orders. “The Indian mills are planning to raise the hot-rolled coil (HRC) prices by Rs 1,500-2,000 per tonne, we believe that there could be a hike in steel price for April deliveries due to higher export offers, costlier HRC imports and increase in demand from the white good sector. We believe the companies are now trying to ease out the inventories lying with them and are focussing on maintaining the production and sale guidance for FY21. Post which we expect there could be a price hike for April deliveries,” Singh said.
Market watchers are advising investors to zero in on companies that are focussing on deleveraging and improving their capacity utilisation. Singh is bullish on Jindal Steel and Power and Steel Authority of India from the metal space.
On the other hand, ICICI Securities is not very much bullish on the sector after the recent run-up. “Steel equities are already factoring in over 3 years extended cycle. We have now factored in a 10 quarter (trough to trough) cycle length. We don’t see adequate risk-reward in the sector to turn constructive. We will wait for cycle correction for better entry opportunity. We continue to value steel equities on FY23E book at their through cycle RoEs,” the brokerage said. It has a ‘Reduce’ call on Tata Steel and JSPL. However, it has a ‘Sell’ call on JSW Steel and ‘Hold’ on SAIL.