'Buy' Tata Steel, JSW Steel, Jindal Steel: Why Nomura is positive on steel stocks 

Nomura India in its latest note on steel sector maintained 'Buy' recommendation on Tata Steel Ltd, JSW Steel and Jindal Steel. The foreign brokerage believes that global factors, especially China, should have a limited impact on the earnings potential of major steel players. Its bullish stance on the India steel sector is underpinned by improving domestic price momentum despite global headwinds. Nomura said large and blast-furnace-based steel players are relatively better positioned than smaller and gas-based DRI steel producers, as the large players can partially substitute LPG usage with alternatives for their downstream operations.

"Given the evolving geopolitical environment, we are closely monitoring the developments in energy markets and supply chains," Nomura said.

On Jindal Steel, the brokerage suggested a target of Rs 1,350. The brokerge applied slightly higher than mid-cycle one-year-forward EV/Ebitda of 8 times, to arrive at the target. The target for JSW Steel is set at Rs 1,400. For Tata Steel, Nomura suggested a target of Rs 240. 

According to the recent data from World Steel Association, crude steel production across 69 countries stood at 153.4 mt in April, down 1.9 per cent YoY, extending the global slowdown trend following a 4.2 per cent decline recorded in March. Nomura said China’s crude steel production fell 2.8 per cent YoY to 83.6 mt, reflecting continued weakness amid supply controls and softer market conditions, while India witnessed a 3.9 per cent growth in production YoY to 13.8 mt. "China’s finished steel exports also declined 9.2 per cent YoY to 9.5 mt in April, impacted by stricter export licensing mandates and shipping disruptions due to West Asia conflict.

In the case of India, Nomura said flat steel prices are holding firm amid continued rebar correction. 

"Domestic HRC prices in India remained unchanged week-on-week to Rs 58,700/t, while rebar prices declined further by Rs 900/t w-w to Rs 56,950/t, reflecting relatively stronger momentum in flat products. Consequently, the domestic flat-long spread narrowed and turned positive, standing at Rs 1,750/t, as sustained resilience in HRC prices continued to outperform the movements in rebar prices," Nomura said. 

Despite the recent correction, India’s HRC spot margin in May stands at Rs 34,950/t, down by over Rs 1,700/t m-m so far, but still remaining well above the median margin level observed over the past two years. "Margin expansion has been supported primarily by higher steel prices, while input costs have witnessed a marginal uptick on a sequential MoM basis," Nomura said.