Steel sector ripe for re-rating
CLSA said it sees potential for Indian steel companies’ valuation multiples to re-rate given supporting factors such as confirmation of anti-dumping duties for the next four years and improving demand outlook.
“Confirmation of anti-dumping duties for the next four years has put a floor to Indian steel prices. Indian steel demand-supply is on the cusp of a multi-year tightening phase given lack of new capacity additions,” said CLSA in a note to clients.
“Steel demand outlook is also improving with the government’s affordable housing program and likely start of an investment cycle by FY19.”
CLSA has retained ‘buy’ on Tata Steel and raised target price to Rs 710 from Rs 570. The brokerage has upgraded JSW Steel to ‘buy’ from ‘outperform’ and raised target price to Rs 300 from Rs 185. These two companies, CLSA said, have the best balance sheets among Indian steel companies with potential for large brownfield expansion.