The brokerage has an overweight rating on SAIL with a target price of ₹165. On Tata Steel, JPMorgan has an overweight rating with a target price of ₹1,850. The brokerage has an overweight stance on Hindalco Industries and NMDC as well, with target prices pegged at ₹605 and ₹210, respectively.
“We continue to see consensus earnings upgrade risk for the sector in general and steel in particular, given that regional HRC steel prices did not go below $800/tonne even in the low point of CY21 and that incrementally with demand set to improve further in first half both locally and globally, steel prices should move higher,” said JPMorgan.
It noted that domestic steel stocks underperformed global peers by an average of 11-15% over the last one to six months. The Ebitda or earnings before interest, taxes, depreciation and amortisation per tonne for the steelmakers likely peaked in the June quarter of FY22 and companies were also exposed to coking coal price inflation. As such, margins of Indian steel companies fell.
JPMorgan noted the domestic steel demand is seasonally strong in March and June quarters.
The brokerage said that with the global growth outlook being robust, and the supply side especially in China not materially expected to ramp up, the outlook for base metals prices remains strong.
“While steel has lagged base metals over the past three months, as the European Energy crisis impacted base metals versus steel, where China’s sharp demand slowdown in the December quarter impacted steel prices negatively… China’s demand should improve from the December quarter lows and support steel prices,” said JPMorgan.
