Steel stocks Tata Steel Ltd and JSW Steel Ltd advanced in Monday's trade amid reports Directorate General of Trade Remedies (DGTR) has initiated the investigation of safeguard provisions pertaining to imports of non-alloy and alloy steel flat products into India. Analysts believe Tata Steel and JSW Steel could be major beneficiaries of any safeguard duty ahead.
Shares of JSW Steel climbed 3.21 per cent to hit a high of Rs 947.95. The Tata Steel stock gained 2.09 per cent to Rs 143.80.
DGTR has noted that sufficient evidence exists that sudden influx of imports has adversely impacted the domestic industry.
"In our view, the initiation of investigation would lead to channel restocking and a further reduction in imports booking. This would aid flat steel prices and spreads, already at four-year and three-year low level, respectively. Furthermore, if safeguard duty is imposed for four years (as requested by applicant companies), it would come as a structural relief to domestic steel players, benefitting especially JSW Steel and Tata Steel," it ICICI Securities said.
The brokerage has a 'Buy' rating on JSW Steel and a target price of Rs 1,085. It sees Tata Steel at Rs 190 and maintained its 'Buy' call on the Tata group stock. Investec also believes JSW Steel and Tata Steel would be the biggest beneficiaries, if the safeguard duty on imported steel is implemented.
ICICI Securities said that HRC prices, at present, are trading at a discount of Rs 5,000 per tonne to rebar prices -- traditionally HRC-rebar spread is at Rs 2,000 per tonne.
Ebitda per tonne of major steel players during POI is down by 25-30 per cent (Rs 3,000-4,000 per tonne compared to 5-year period prior to that. ICICI Securities said a price hike of 8-9 per cent would restore Ebitda per tonne to 5-year average, which is likely to be much lower than the safeguard duty being envisaged.
"We believe the investigation of safeguard provisions pertaining to alloy and non-alloy imports is the first step towards protecting the domestic market players against unfairly priced imports. In our view, the uptick in HRC prices is unlikely to be as much as safeguard duty being on imports as the primary endeavour of steel companies would be to maintain their market share," it said.
That said, the broking firm believes the decline in HRC price would abate and uptick is on cards in near term, raising both spreads and profitability.
Furthermore, it believes the duration of safeguard duties of 4 years as requested by the appellants is likely to ensure that upcoming capacities are fully absorbed, leading to structural improvement in operating environment, benefitting especially JSW Steel and Tata Steel.