While China’s CY24 exports of carbon and stainless steel hit a decade-high, weighing on global prices, Jefferies said that Asian conversion spreads are already 30% below long-term averages. This opens room for expansion, especially if Chinese demand picks up or production is curtailed.
Historical valuations and risk-reward favour steel
The foreign brokerage said that over the last 18 years, steel stocks such as Tata Steel and JSW Steel bought when spreads are below $200 per tonne have often delivered strong 1-year returns, indicating a favorable risk-reward setup at current levels.
Despite steel stocks currently trading above their 10-year average price-to-book (PB) ratios, the brokerage believes valuations are sustainable due to expected volume growth and margin expansion.
Stock calls
– Tata Steel: Remains a preferred pick, primarily on valuation grounds. Target raised to ₹200 from ₹180 earlier.
– Jindal Stainless (JDSL): Initiated with a ‘Buy’ rating and a target price of ₹800 per share.
– JSW Steel
: Upgraded from ‘Hold’ to ‘Buy’. The target price has been raised by 30% to ₹1,200 from ₹920 earlier.
– Coal India: ‘Buy’ rating retained with a target of ₹455 per share. Jefferies cites India’s strong economic growth and rising power demand as key drivers for coal volume growth. At 8.2x FY26E adjusted PE and with a 7% dividend yield, the stock offers attractive value.
– Hindalco: Downgraded from ‘Buy’ to ‘Hold’; target cut to ₹690 from ₹800 earlier. Jefferies expects muted earnings growth and rising debt levels to weigh on performance over FY25–27E.
For Tata Steel, JSW Steel, and Jindal Stainless, Jefferies estimate strong 8-10% volume CAGR over FY25–27E.
It expects Coal India to deliver 5% volume CAGR, driven by India’s growing power needs.
On the flip side, for Hindalco, the brokerage sees flattish volumes in India aluminum and just 1% CAGR at subsidiary Novelis over FY25-27E.
Arvind Sanger, Managing Partner, Geosphere Capital Management, said, “Metals is an area that I don’t look at India too often, but there are a couple of interesting metal companies. And to the extent that global growth is back on track, metals is an area that is of great interest to us.”
