Deutsche Bank Raises Price Tar­gets for Steel Mak­ers

It ex­pects steel de­mand to in­crease to 8-10% in FY18 fu­elled by the govt’s in­fra push, re­vival in ru­ral de­mand

The Economic Times - - Smart -

Mum­bai: Deutsche Bank raised its price tar­get on Tata Steel and JSW Steelby38%and21%,re­spec­tively,asit ex­pects the sec­tor to ben­e­fit from the gov­ern­ment’s fo­cus on build­ing in­fra­struc­ture and re­viv­ing ru­ral de­mand.

The bro­ker­age house ex­pects do­mes­tic­steelde­mand­togrow8-10%inFY18. Sales had re­mained sub­dued over the past cou­ple of years, in part due to weak mon­soons that hurt the ru­ral econ­omy. Cheap sup­plies from coun­tries such as China was another fac­tor weighin­gon­do­mes­tic­steel­com­pa­nies.

There has been a strong re­cov­ery in do­mes­tic steel prices post im­po­si­tion of a min­i­mum im­port price (MIP) in Fe­bru­ary this year. How­ever, the 1820% rise in lo­cal steel prices since MIP has been sig­nif­i­cantly lower than the 34-49% re­bound in Chi­nese/CIS steel prices over a sim­i­lar pe­riod.

“We re­main con­fi­dent of an im­prov­ing prof­itabil­ity tra­jec­tory for In­dian steel play­ers over the next two quar­ters,” Deutsche Bank’s head of re­search, Ab­hay Lai­jawala, wrote in a note to clients. “We be­lieve the dis­count of do­mes­tic prices to landed costs should nar­row as vis­i­bil­ity on do­mes­tic steel de­mand ac­cel­er­a­tion im­proves. We also re­main op­ti­mistic on the do­mes­tic steel de­mand out­look sup­ported by gov­ern­ment’s thrust on in­fra­struc­ture build­ing.”

The bro­ker­age firm in­creased Tata Steel’s price tar­get to ₹ 296 from ₹ 215, while main­tain­ing a ‘hold’ rat­ing on the stock. The re­cent an­nounce­ment re­gard­ing the po­ten­tial sale of loss-

mak­ing UK as­sets is seen as a longterm pos­i­tive. How­ever, near-term stock price im­pact will be de­ter­mined by deal dy­nam­ics, po­ten­tial shut­down and asset trans­fer costs, it said.

JSW Steel re­mains the bro­ker­age’s ‘pre­ferred pick’ in the sec­tor. It raised the stock’s price tar­get to ₹ 1,575 from ₹ 1,301 as the com­pany is likely to ben­e­fit from vol­ume ramp-up through its re­cently com­mis­sioned 4 MT ca­pac­ity.

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