What’s Driving Our Bullish View on Steel Stocks?
Market Share of Crude Steel Production Capacity FY24 Market Share Of Crude Steel Production Capacity FY30E
| Steel stocks (listed) | FY24 | FY31E |
| JSW Steel | 36 | 52 |
| Tata Steel | 35 | 50 |
| Sail | 20 | 36 |
| Jindal Steel | 10 | 22 |
| AM/NS | 9 | 24 |
| Others | 62 | 117 |
| Total Crude Steel Production Capacity | 171 | 300 |
*MTPA(Million Tonne Per Annum)
The Indian steel sector has been undergoing significant consolidation and capacity expansion, similar to what has been happening in cement industry.
A key structural change that happened in the domestic steel sector was consolidation. Top 5 companies now control more than 60% of the domestic steel-making capacity. This market share is expected to be remain in 60% range with smaller companies getting acquired by larger companies concentrating market share with a few giants.
Recent Major Acquisitions (Post-FY20)
-
Tata Steel acquired Neelachal Ispat Nigam Ltd. (NINL) → $1.45 billion (July 2022)
- Strengthened Tata Steel’s long steel product portfolio and increased production capacity.
-
JSW Steel acquired Bhushan Power & Steel (BPSL) → $2.69 billion (February 2020)
- Expanded JSW Steel’s capacity and market presence in eastern India.
-
ArcelorMittal Nippon Steel India (AMNS) acquired Indian Steel Corporation → April 2023
- Strengthened AMNS’s flat steel product portfolio.
-
Jindal Stainless Limited acquired Rathi Super Steel Limited → $24.87 million (May 2023)
- Expanded Jindal Stainless’ production in long steel.
-
Jindal Stainless Limited acquired Rabirun Vinimay Private Limited → $11.6 million (December 2023)
- Further strengthened its market position.
-
JSW Steel acquired Asian Colour Coated Ispat → $211.89 million (October 2020)
- Helped JSW expand its coated steel business.
What This Means for the Steel Industry?
As weaker firms exit or get absorbed, the top 5-6 companies will command the bulk of capacity, gaining pricing power, cost efficiencies, and stronger supply chain integration. This oligopolistic structure could lead to better profitability, disciplined capital expenditure, and reduced price wars, benefiting the industry in the long term. If consolidation continues at this pace, the next 3-4 years could be transformative, positioning India’s steel giants among the most competitive globally.
2.Prices of Key Raw Materials Used In Production Of Steel on a decline
Recent trends indicate a potential turnaround, with raw material prices, including iron ore and coking coal, on a decline. As shown in the charts below, coal prices (HCC & PCI) have dropped since mid-2024, while iron ore prices continue to trend lower, easing cost pressures for steelmakers. This decline is now reflected in expanding TTM OP margins which stands at ~26%
Steel Products Classification: Steel Products are classified majorly into Hot Rolled Coils (HRC), wire rods, TMT bars and round bars. HRC prices are generally taken as the benchmark for steel prices, which are used for a wide range of applications such as, automobiles, electrical appliances, construction materials, containers, agricultural equipment, steel pipes, etc.
Hot-rolled coil (HRC) prices have started to recover, as seen in the recent uptick across major markets (FOB Black Sea, FOB China, CFR Europe). This increase in HRC prices has led to better realizations for steelmakers, boosting sales as seen in TTM sales.
OUR INVESTMENT CASE
With this consolidation wave, the top 4 steel stocks – JSW Steel, Tata Steel, Jindal Steel and SAIL emerge as the most lucrative investment prospects. They stand to benefit the most from capacity expansion, improved margins, and strong pricing power.
The shift toward higher market concentration will drive stable earnings, lower cyclicality, and global competitiveness, making these companies key beneficiaries over the next 3-4 years.
Earning Performance: Large Companies in Steel Sector
| In Rs. Cr. | Mar’19 | Mar’20 | Mar’21 | Mar’22 | Mar’23 | Mar’24 | TTM |
| Sales | |||||||
| JSW STEEL | 84,757 | 73,326 | 79,839 | 1,46,371 | 1,65,960 | 1,75,006 | 1,70,274 |
| TATA STEEL | 1,57,669 | 1,48,972 | 1,56,477 | 2,43,959 | 2,43,353 | 2,29,171 | 2,21,012 |
| SAIL | 66,974 | 61,664 | 69,114 | 1,03,477 | 1,04,448 | 1,05,378 | 1,01,121 |
| JINDAL STEEL | 39,372 | 30,465 | 38,989 | 51,086 | 52,711 | 50,027 | 50,069 |
| OPM (%) | |||||||
| JSW STEEL | 22.36 | 16.19 | 25.1 | 26.65 | 11.18 | 16.13 | 13.3 |
| TATA STEEL | 18.64 | 11.96 | 19.49 | 26.02 | 13.26 | 9.72 | 11.47 |
| SAIL | 14.58 | 16.57 | 18.43 | 20.62 | 7.7 | 10.58 | 10.53 |
| JINDAL STEEL | 21.22 | 22.37 | 36.78 | 29.91 | 18.56 | 20.28 | 19.31 |
| Net Profit | |||||||
| JSW STEEL | 7,639 | 4,030 | 7,911 | 20,665 | 4,144 | 8,812 | 3,478 |
| TATA STEEL | 10,218 | 1,557 | 7,490 | 40,154 | 8,760 | -4,437 | 2,376 |
| SAIL | 2,349 | 2,121 | 4,148 | 12,243 | 2,177 | 3,067 | 1,708 |
| JINDAL STEEL | -1,645 | -109 | 3,634 | 6,238 | 3,174 | 5,938 | 4,082 |
| JSW Steel | SAIL | Tata Steel | Jindal Steel & Power | |
| OPERATIONAL METRIC | ||||
| Manufacturing Capacity (In Millions) | 36 MT | 20 MT | 35 MT | 10 MT |
| Expected Capacity | 52 MT | 36 MT | 50 MT | 22 MT |
| Realization/Tonne | 56849.73 Rs/MT | 55282.17 Rs/MT | 69492.23 Rs/MT | 54054.35 Rs/MT |
| Capacity Utilization | 80.85% | 97.73% | 88.80% | 82.92% |
| Quarterly Sales Volume | 5.59 Million Tonnes | 4.43 Million Tonnes | 7.72 Million Tonnes | 1.9 Million Tonnes |
| EBITDA/Tonne | 8314.46 Rs/Tonne | 5392.78 Rs/Tonne | 7759.0 Rs/Tonne | 11226.32 Rs/Tonne |
| FINANCIAL METRIC | ||||
| Price to Book | 3.21 | 0.85 | 1.96 | 1.96 |
| P/E | 77.43 | 21.71 | 64.68 | 22.69 |
| 5yr Avg Cash Conversion Cycle | 33.21 Days | 25.77 Days | -37.16 Days | 1.29 Days |
| 5yr Average Interest Coverage Ratio | 3.44 | 4.23 | 3.72 | 3.81 |
| 5yr Avg ROCE | 14.24% | 11.47% | 13.68% | 14.71% |
| 5yr Avg Operating Profit Margin | 19.05% | 14.78% | 16.09% | 25.58% |
| 5 yr average Debt to Equity | 1.27 | 0.73 | 1 | 0.62 |
| 5yr CAGR Net Profit | 16.94% | 7.66% | n/a | n/a |
| 5yr Average Return on Assets | 4.96% | 3.85% | 3.87% | 4.74% |
VALUATIONS
| Steel stocks (listed) | EV/EBITDA | PE | PB |
| JSW STEEL | 15x | 77.43x | 3.21x |
| TATA STEEL | 10.29x | 64.68x | 1.96x |
| SAIL | 7.86x | 21.71x | 0.85x |
| JINDAL STEEL | 10.95x | 22.69x | 1.96x |
Our top Pick among listed steel stocks – JINDAL STEEL & POWER
Jindal Steel & Power offers a high-growth, high-margin opportunity with capacity expected to more than double from 10 MT to 22 MT. It leads peers on efficiency with the highest EBITDA/tonne (₹11,226) and operating margin (25.6%).
Supported by a strong balance sheet (D/E 0.62), efficient working capital (1.3 days), and solid ROCE (14.7%), the company trades at reasonable valuations—EV/EBITDA of 10.95x and PE of 22.7x. With India aiming to increase steel capacity to 300 MTPA (from 171 MTPA) and domestic consumption projected to rise by 190–210 MTPA by FY30, JSPL is well-positioned to benefit from this structural upcycle.
Reverse DCF Implies Reasonable Growth
Our reverse DCF model, using a slightly conservative 18% discount rate (to reflect the sector’s cyclical nature) and a 5-year median PE of 15x as the exit multiple, implies a required earnings CAGR of ~20%. This growth assumption appears achievable given the industry tailwinds and JSPL’s aggressive capacity expansion.
Why is India Betting Big On Steel Capacity
India aims to expand its total crude steel capacity to 300 MTPA, nearly doubling from the current 171 MTPA. By FY30, steel production is projected to increase by 210-220 MTPA, with domestic consumption estimated to increase by 190-210 MTPA.
Steel Sector Growth Driven by Urbanization and Infrastructure Development
The expansion of India’s steel sector is closely tied to the pace of urbanization. With per capita steel consumption expected to rise from 93 kg to 160 kg by 2030-31, India is at an inflection point in demand growth.
India’s steel consumption continues to rise, driven by ~15% CAGR growth in public and private capex over 13 years. Post-FY21, demand surged across infrastructure, construction, autos, renewables, and consumer durables.
India is the only top-10 steel producer with consistent growth, with market share rising to ~8%. Steel demand has outpaced GDP growth (>8% CAGR post-FY21) and remains strong even after COVID-19-driven pent-up demand subsided.
Urbanization as a Key Driver
Unlike developed economies that are nearing saturation, India is in a high-growth phase, similar to China in the early 2000s and Japan, the EU, and the USA during the 1960s and 1970s. According to the National Institute of Urban Affairs, India’s urban population is projected to reach ~590 million by 2030. As urbanization accelerates, spending on urban transportation, infrastructure, and construction—as a percentage of GDP—will rise, directly boosting demand for steel and other metals.
About Author
