Steel Companies Margins May Take Hit In Q4 If Prices Not Hiked; PL Likes 8 Stocks; From Tata To Jindal

Indian steel companies prices are lagging and that may take a toll on their margins by the end of the fourth quarter of FY24. This is because coking coal prices have shot up over 20% sequentially, and on the contrary, steel prices have fallen by around 3%. Prabhudas Lilladher hence believes that steel firms need to hike steel prices to avoid margin pressure. The brokerage's steel universe currently has eight stocks that it has recommended to buy or accumulate.

As per the latest report by Prabhudas Lilladher, Indian benchmark HRC prices (ex-Mumbai) remained flat WoW at Rs 55,000/t despite the firming up of global steel prices over the last few weeks. Domestic steel spot spread declined to Rs 20,217/t from Rs 20,715/t WoW. Chinese HRC prices increased 2% WoW to USD 575/t.

On an import parity basis, the brokerage pointed out that domestic premiums have evaporated over the last one month as Chinese prices have increased from USD 520/t while Indian prices declined 3% MoM. Chinese spot spreads improved 7% up WoW to USD 92/t. Also, West European HRC prices increased to USD 630/t from USD 625/t WoW while spot spreads remained flat at USD147/t WoW.

Meanwhile, coking coal (FOB Australia) prices increased 2% WoW to USD 322/t while iron ore fines prices (62% CNF Rizhao) remained flat WoW at USD 133/t, it said.

Accordingly, the brokerage added, "We believe steel companies under our coverage universe to witness margin
compression in 4QFY24 unless they take price hikes; as coking coal prices have moved up sharp 21% QoQ while steel prices declined 3% over the same period."

Further, it said, "As festive season and state elections are getting over, we expect domestic demand to resume and companies would be able to take price hikes gradually in tandem with rising global steel prices."

Here is the list of steel stocks that Prabhudas Lilladher likes:

1. Tata Steel: Buy a recommendation for a target price of Rs 138.

2. JSW Steel: Buy for a target price of Rs 903.

3. JSPL: Buy for a target price of Rs 751.

4. SAIL: Accumulate for a target price of Rs 95.

5. Jindal Stainless: Accumulate for a target price of Rs 532.

6. NMDC: Accumulate for a target price of Rs 176.

7. Hindalco: Buy for a target price of Rs 583.

8. NALCO: Accumulate for a target price of Rs 100.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.