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Strong H2FY26 domestic steel demand and reduced imports to support the sector

ICICIdirect Research 03 Oct 2025 DISCLAIMER

Domestic steel demand is expected to remain strong in H2FY26, aided by the end of the monsoon season and the favourable impact of recent GST reforms. Key end-use industries such as construction, automobiles, and consumer durables are projected to drive growth, with overall steel consumption likely to increase by 9 - 10% YoY in FY26.
With demand momentum improving and domestic steel prices continuing to trade at a discount to Chinese HRC, industry participants anticipate price hikes during H2FY26.
Additionally, China’s steel production has fallen ~3% YoY to 672 MT on a YTD basis in CY25. Consequently, the Bloomberg data shows the Chinese steel exports declined by 3% MoM in Aug’25. This is followed by the Chinese government aiming to cut output by 50 MT (~5% of total production) under its anti-involution measures. This decline in exports is likely to curb imports into India, providing further stability to domestic prices.
Moreover, the DGTR has proposed a 12% import duty for three years on flat products (HRC and CRC) priced below $675/ton (~₹59,500/ton). This is likely to be announced this month as the provisional safeguard duty of 12% is set to expire. This aims to shield the domestic industry from low-cost imports, thereby supporting price stability.
Thus, we remain positive on domestic steel industry, with Tata Steel as our preferred pick, backed by its strategic capacity expansion in India, multiple profitability levers across domestic and European operations, and continued cost optimization initiatives. Moreover, as the European Union proposes to cut steel import quotas by ~50% and raise duties on volumes above those levels to 50%, the company stands to benefit given its ~7 MTPA production capacity in Netherlands contributing ~25% of the consolidated revenue of the company.
We have a BUY rating on TATA steel with SOTP-based target price of ₹200 (8x/4x EV/EBITDA to India/Europe business on FY27E).
Also, we are positive on domestic stainless-steel space, with Jindal Stainless as our top pick, supported by its market leadership in domestic stainless-steel space, rising demand from automotive and emerging sectors (green hydrogen, nuclear energy, defence), and improving profitability.
We have a BUY rating on Jindal Stainless with a target price of ₹940 i.e. 12.5x Avg FY27E-28E EV/EBITDA (tad premium given long term high growth rate drives in this domain).

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