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Stocks of major steel companies are seen slightly down next week due to weak steel prices and expectations of not-so-bullish Jan-Mar earnings. Domestic steel prices have weakened because of sluggish demand following a slowdown in the economy, they said. India's economy grew at its slowest pace in a decade in 2012-13. Issues in availability of iron ore and project delays also remain major negative factors for the sector.
The Supreme Court's decision to reject petitions of JSW Steel Ltd and Kalyani Steels Ltd, seeking review of the apex court's September 2010 verdict that quashed mining leases granted to the companies, is expected to weigh on the share price of the two steel makers. Shares of Jindal Steel & Power are expected to fall in the coming sessions as the Delhi-based company reported a nearly 35% on-year decline in its Jan-Mar consolidated net profit even as its topline was flat. Falling steel prices dented the company's earnings.
The company's bottomline at 7.60 bln rupees, was below Street expectation, while a 2.2% rise in topline to 55.83 bln rupees was above estimates. We expect that the company's net profit was seen at 9.61 bln rupees, while its revenues were expected at 52.21 bln rupees in Jan-Mar. However, the downside in shares of Jindal Steel & Power is seen limited because of company's outlook.
The Delhi-based company is planning to double its steel production capacity to 7.0 mln tn in the current financial year. Of this, about 1.5 mln tn will be in Angul and 2 mln tn will be in the company's Oman plant. We continue to like Tata Steel for its ongoing sustainable transformation, and we upgrade Steel Authority of India to equal-weight on valuations. Earnings of major steel companies will be eyed by the market for further direction.
