Top 5 Steel Stocks to Add to Your Watchlist

This scenario gave India a great opportunity to increase its steel exports to Europe and the Middle East.

By increasing their exports, steel companies can also increase their margins because export prices tend to be higher than domestic prices.

Here are five stocks that can take advantage of this situation.

#1 Tata Steel

First on our list is Tata Steel, Asia’s first integrated private steel company.

The Company is mainly engaged in the manufacture and sale of finished steel products.

It is present across the entire value chain, from the extraction of iron ore and coking coal to the distribution of steel and value-added products.

The company caters to multiple industries through its broad product portfolio, including automotive, construction, agriculture, industrial and general engineering. It also has a global presence and serves the steel needs of more than 50 countries on five continents.

Over the past five years, Tata Steel’s revenue has grown at a steady pace of 7.2% CAGR, driven primarily by volume growth and price realizations. Its earnings also increased by 13.5% CAGR over the same period.

The company has been a consistent dividend payer. Its five-year average dividend payout and five-year average dividend yield stand at 32.4% and 2.7%, respectively.

In the latest quarterly results, Tata Steel’s revenue rose 44% year-on-year (YoY) while net profit jumped 140% YoY. Going forward, increasing auto sales and infrastructure activities in the country are expected to boost revenues.

To learn more about Tata Steel, check out itsfact sheet.

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#2 JSW Steel

Next on our list is JSW Steel, one of the largest steel producers in the country.

The company’s core business includes the manufacturing and distribution of finished steel and other value-added products.

In recent years, it has also acquired iron ore mines and ventured into mining. Since then, it has increased its sourcing of raw materials from captive mines from 4% a few years ago to almost 50% in the current fiscal year.

JSW Steel has a total manufacturing capacity of 28 MT in India and USA. It aims to increase its steel capacity to 37.5 MT by 2025 and 45 MT by 2030.

Over the past three years, the company has already invested 480 billion in the form of capex.

Its diverse product portfolio caters to the automotive, machinery and general engineering sectors. It also exports its products to more than 100 countries around the world.

Over the past five years, JSW Steel’s revenue has grown at a CAGR of 9.6%, driven by steel volume growth from capacity additions and an increase in share value-added products.

Its profit also grew at a healthy pace of 17.9% thanks to superior logistics connectivity and adequate upstream integration through several captive iron ore and power plants.

The company has also been consistent in paying dividends. Its five-year average payout ratio and five-year average yield were 14.6% and 1.1%, respectively.

Its revenue rose 73.1% and profit 68.1% in recent quarterly results. The net profit margin was 11.8%.

Going forward, the trend of increasing domestic steel consumption will lead to higher revenues and volumes.

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#3 Jindal Steel & Power

Third on our list is Jindal Steel & Power, one of the country’s leading steel producers. The company is active in steel manufacturing, power generation and mining.

It has a manufacturing capacity of 8.6 MT of crude steel and 9 MT of pellets at three manufacturing plants in India. Jindal Steel aims to increase its steel capacity by 15.9 MT by 2025 and has a capex investment plan of 180 billion in the pipeline.

Its product portfolio extends from the widest flat products to long products. It supplies several industries, including infrastructure and construction, general engineering, railways, automotive and capital goods.

The company also exports its products to more than 22 countries.

Jindal Steel’s revenue grew at a healthy CAGR of 17.4% over the past five years, driven by higher volumes and realizations. However, it did not pay dividends to its shareholders, mainly due to its debt reduction and expansion plans.

In thelatest quarterly results, the company’s revenue increased 30% year-on-year. Its net profit fell due to higher expenses.

Going forward, revenues are expected to increase due to ongoing capacity additions.

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#4 Steel Authority of India Limited (SAIL)

Next on our list is the largest public sector steel company in India, SAIL.

The Company’s principal business activities include the mining and sale of iron ore as well as the manufacture and sale of finished steel and value-added products.

Although the State holds a majority stake (65%) in the company, it enjoys operational and financial autonomy.

SAIL has a total manufacturing capacity of 21.5 MT spread over five integrated steel plants and three special steel plants in India. It aims to increase its capacity to 29.6 MT by 2030 and has already invested 662.8 billion since 2010.

The company has the most diverse product portfolio offered by any domestic steel company through which it caters to a large number of industries, including road and rail infrastructure, oil and gas, irrigation, electricity and airport and port infrastructure.

It currently exports its products to more than 30 countries and aims to increase its international presence.

Over the past five years, SAIL’s revenue has grown at a healthy CAGR of 12%, driven by volume growth and an increase in completions. Its profit also increased by a CAGR of 4.5% over the same period.

The company has paid dividends twice in the past five years. Its payout ratio and dividend yield for fiscal 2021 were 31.4% and 5.4%, respectively.

In recent quarterly results, SAIL’s revenue grew 27% and net profit 8.1%. Going forward, the company’s investment in the modernization and expansion plan should bear fruit, reducing its production costs.

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Apollo #5 APL tubing

Last on our list is APL Apollo Tubes, the largest player in steel tubes and structural products in India.

The Company is engaged in the manufacture of branded steel pipes such as ERW steel pipes and galvanized pipes.

It has ten manufacturing plants in India with a capacity of 2.6 MT that produce more than 1,500 varieties of pipes used in urban infrastructure, housing, greenhouses, solar power plants, engineering and irrigation.

APL Apollo Tubes holds 50% of the steel construction tubes market and dominates the category. It also has a pan-India distribution network with a presence in over 50,000 retail stores across 300 cities and towns in India.

Over the past five years, the company’s revenue has grown at a healthy CAGR of 19.7%, driven by volumes, capacity expansion and an expanded distribution network. Its net profit increased by a CAGR of 21.8% over the same period.

The company hasn’t paid any dividends in the past two years, mainly because it reduced its net debt on its books.

APL Apollo Tubes revenue rose 24.1% in the latest quarterly results. Its profit fell due to the rising cost of sales. Its net margin is 4%.

Going forward, the company is optimistic about volume growth driven by operations at the new plant, which is expected to start soon.

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Overview of Major Steel Stocks in India fromEquitymaster’s Stock Screener

Here is a quick overview of the best companies based on their finances.

Please note that these parameters can be modified according to your selection criteria.

This will help you identify and eliminate actions that do not meet your requirements and focus on actions that are well within the metrics.

Why invest in steel companies?

The steel sector is in its growth phase.

In recent years, several government initiatives have stimulated demand for steel despite slowing economic growth.

Since the National Steel Policy in 2017 until Atmanirbhar Bharatall aim to increase the country’s steel production and consumption.

Moreover, since steel is used in several industries such as automotive, infrastructure, construction, and energy, the growth of any of these industries will increase the demand for steel.

With so many factors positively affecting the industry, a new investment opportunity awaits.

However, it should be understood that the steel industry is cyclical in nature and the demand for steel is higher during economic booms and busts during recessions.

Apart from this, one should also check the fundamentals and valuations of the company before considering investing in it.

Good investment!

Warning:This article is for information only. This is not a stock recommendation and should not be treated as such.

This article is syndicated from equitymaster.com

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About Cassondra Durden

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