Deutsche Bank Raises Price Targets For Steel Makers Like Tata Steel, JSW Steel

12 April 2016

Deutsche Bank raised its price target on Tata SteelBSE -1.37 % and JSW SteelBSE 0.25 % by 38% and 21%, respectively, as it expects the sector to benefit from the government's focus on building infrastructure and reviving rural demand.

The brokerage house expects domestic steel demand to grow 8-10% in FY18. Sales had remained subdued over the past coupleof years, in part due to weak monsoons that hurt the rural economy. Cheap supplies from countries such as China was another factor weighing on domestic steel companies.

There has been a strong recovery in domestic steel prices post imposition of a minimum import price (MIP) in February this year. However, the 18-20% 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 lossmaking 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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