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Strength in Steel amidst Macro Induced Weakness

July 10, 2008

India MetalsThe weaker steel demand story is a lot less relevant than the Chinese governments resolve to control steel prices. News of some auto producers in the US not accepting the midyear surcharges has renewed fears on steel demand. Domestic price increases may only be possible from April 09 and the demand may not taper significantly in the near term.

Using a higher equity risk premium and a higher risk-free rate, make changes to EBITDA used for valuation from FY10E to rolling four quarters.

Sail:
The PSU which has made a solid comeback is expected to report an EPS of Rs 21.4 and Rs 30.9 for FY09 and FY10 respectively. A target price of Rs 280 is based on 5x FY10 EV/EBITDA.

JSW Steel:
JSW after having consolidated various steel plants under the Jindal group is all set for a superior growth story. The company is expected to report an EPS of Rs 115 and Rs 162 for FY09 and FY10 respectively. A target price of Rs1300 is based on 5x FY10 EV/EBITDA.

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