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Domestic Steel Players: Better Days Ahead

ICICIdirect Research 01 Aug 2025 DISCLAIMER

Results came in below expectation; shutdown led negative operating leverage largely dented the positives of rise in metal prices (up ~₹ 3,000-3,500/tonne) and lower coking coal costs (~$10-14/tonne).
Majority of players reported a sequential decline in sales volume due to plant maintenance shutdown. JSW Steel was the only player to report 9% YoY to 6.7 MT driven by ramp up of new capacities at Bhushan Power and Steel ltd and Vijayanagar.
JSW Steel reported a QoQ increase in EBITDA/ton by ~₹1,800/ton to ₹10,620/ton
Adjusted EBITDA/tonne for SAIL stood at ~₹5,700/ton an increase of ~₹450/ton QoQ, due to one-time inventory valuation impact of ₹1,050 crore (~₹2,300/ ton)
Notably, Tata Steel managed to increase its EBITDA/ton by ~₹2,500/ton QoQ to ₹15,460/ton.
Encouragingly, however, higher volumes and lower coking coal cost ($5-10/tonne) will sustain EBITDA/ton going ahead amid partial correction in metal prices (down ~₹ 2,000/tonne QoQ)
Moreover, JSW Steel and Tata Steel have retained their volume guidance, largely driven by the ramp up of new capacities in FY26- (~5 MTPA Kalinganagar at Tata Steel) and (~5 MTPA Vijayanagar at JSW Steel).
We remain positive in steel space and our top bet is Tata Steel supported by its strategic capacity expansion in India and multiple profitability improvement levers across Indian and Europe operations, drive by ongoing cost optimization. We maintain BUY rating on Tata Steel with SOTP-based target price of ₹200 (8x/4x EV/EBITDA to India/Europe business on FY27E).

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