Goldman Sachs has downgraded SAIL to sell on lower margins and lower returns.
The brokerage has turned more cautious on India steel companies as spreads have started to narrow following correction in prices, driven by lower import parity prices due to weak global demand and weak domestic demand. It says that SAIL and Tata Steel are likely to be relatively worse off in a weaker iron ore price environment, while all other companies should benefit from lower coking coal costs. Shares of SAIL fell 3 percent while JSW Steel also slipped 4 percent intraday on Monday. Goldman Sachs has downgraded JSW to neutral.
The brokerage has also lowered FY15E-FY17E EBITDA for Indian steel companies by 9-24 percent, EPS by 8-45 percent and ROE by 50-530 basis points.
“Steel consumption has not picked up in this fiscal year, with growth year-to-date (YTD) at less than 2 percent. Although we factor in a recovery for FY16E/FY17E, we see limited upside risk to our forecasts. Any delay in recovery would likely impact long product prices,” it says in a note. It also warms that FY16 steel spread expansion is unlikely as global capacity utilisation remains low, increased pricing pressure for India hot-rolled coil (HRC) due to Chinese imports and a weaker ruble.
It expects iron ore prices to remain soft and only a marginal uptick in coking coal. At 11:49 hrs Steel Authority of India was quoting at Rs 71.90, down Rs 1.60, or 2.18 percent while JSW Steel was quoting at Rs 939.05, down Rs 22.30, or 2.32 percent on the BSE.
Source: Moneycontrol
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