Tata Steel vs JSW Steel: Which stock is the better choice in the face of market volatility?
Shares of Tata Steel and JSW Steel are among investors’ favorite picks given their brand image and the size of their operations in the industry. While Tata Steel is the metal branch of the famous Tata Group, JSW Steel is the flagship company of JSW Group. Tata Steel is the largest private sector steel producer in India, followed by JSW Steel.
However, both companies have been affected by the imposition of a 15% export duty on several finished steel products from May 22. The duty weighed on steel exports in July, which fell 75% year on year (year-on-year). ) also driven by seasonally weak demand and the global slowdown in the commodity cycle. July was the fourth consecutive month of decline for Indian steel exports. Also in August, steel exports fell 66% year-on-year to 0.45 million tonnes (mt). The previous year’s exports amounted to 1.33 million tonnes.
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In a report, credit rating agency Crisil said the 15% tariff imposed on several finished steel products will cause exports to fall by 35-40% to 10-12 million tonnes over the next year. 23. Meanwhile, global steel prices fell nearly 28% as lockdowns in China impacted global demand.
Crisil said for the remainder of the financial year, global prices are expected to remain range-bound, amid China lifting Covid restrictions and growing expectations of production cuts to meet decarbonization targets in the second semester. This will affect major domestic steel producers such as Tata Steel and JSW Steel among others. Export taxes and falling steel prices will impact the outlook for these stocks.
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Shares of Tata Steel have lost 20.66% in one year and have fallen 7.96% in 2022. Tata Steel shares are down 28.20% from their 52-week high of 142.62 rupees reached on October 19, 2021.
On the other hand, JSW Steel stock is trading flat on a year-to-date basis. The stock is down 15.83% from its 52-week high of Rs 789.95 hit on April 19, 2022. At 12:38 p.m. today, Tata Group stock was trading down 0 .92% to 102.50 rupees on BSE. The market capitalization of the company stood at Rs 1.25 lakh crore.
JSW Steel shares also fell 1.76% to Rs 663 in the afternoon session.
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On September 26, international brokerage firm Jefferies maintained a hold rating on Tata Steel with a target price of Rs 95. It raised the target price to Rs 87, implying an 8.8% decline from the closing price of Rs 104.25 on September 23.
Steel prices began to rise for the first time since the imposition of export duties. But, Jefferies said it was too early to be conservative. Indian flat steel prices fell 19% from June quarter average levels. The international brokerage sees downside risk as Indian prices are 6-11% above import parity.
Jefferies said he preferred Tata Steel to JSW Steel, given lower price-to-book valuations and better cash flow prospects. He expects JSW Steel stock to fall more than 42% from the closing price of Rs 668.6 on September 23. It gave an underperforming rating with a target price of Rs 385 per share for JSW Group stock.
Here’s a look at what analysts had to say about the outlook for the two steel stocks.
Jitendra UpadhyaySenior equity research analyst Bonanza Portfolio said: “JSW Steel has a better cash conversion cycle of 36 days compared to Tata Steel’s 64 days. If we compare the two companies on the valuation report of the price to equity (PE) against the industry PE of 6.13x, Tata Steel is trading at a PE of 3.17x, which shows that Tata Steel is undervalued and has huge growth potential. On the other hand, JSW Steel is trading at a PE of 9.71x indicating that it is overvalued based on EV/EBITDA also, Tata Steel looks good as its EV/EBITDA is 2 .87 times, which is comparatively lower than JSW Steel’s 5.98 Steel prices fell sharply in June 2022 after the imposition of 15% export duties, but the average realization remained higher by 6-12% QoQ Higher than expected realization helped beat consensus estimates In the first quarter of the ex ercie 22, domestic steel producers reported lower margins or lower EBITDA per ton with the maximum decline for JSW Steel. »
Pranit Arora, co-founder and CEO, Univest prefers Tata Steel over JSW Steel.
“Tata Steel looks more attractive at the moment. Consolidating a few Tata metal related companies into Tata Steel will ultimately have synergies of scale as well as a broad product mix. If things work out well with the consolidation, an EBITDA/ ton can be expected due to operational leverage Tata Steel’s target price is Rs 138 for 3-6 months,” Arora said.
Abhijet from Tips2trade is positive on JSW Steel’s post technical analysis.
“Even though fundamentally Tata Steel margins and other important ratios are much better than JSW Steel, technically JSW Steel looks more positive on the charts. A daily close above 633 should lead to Rs 666-687 at short term for JSW Steel Tata Steel needs to close above Rs 101.5 on the daily charts for an uptrend to Rs 104.8-108 in the short term,” he said.
Ravi SinghVice President and Head of Research, Share India is bullish on Tata Steel.
“Tata Steel’s prospects are better than JSW Steel’s in the long term. The recent merger of Tata Steel is going to have a positive impact on the group as it will strengthen the group’s stake. In addition, the merger may prove more operationally efficient and cross-entity collaboration Tata Steel aims for better utilization of facilities and faster execution, which if achieved will boost Tata Steel’s growth figures from a long-term perspective The stock could see lower levels of buy for the target levels of Rs 107 in the short term and Rs 120 in the long term,” Singh said.
Ravi SinghalCEO of GCL, said: “According to recent events, Europe is facing a recession as well as an energy crisis, and Tata Steel’s exposure is concentrated in Europe. Technically, JSW Steel also seems to be in good shape. Over the next six months, you can invest for a target of Rs 700 to 800. Maintain a stop loss of Rs 607.”