Bank of America Merrill Lynch expects earnings expectation upgrade on steel stocks
Safeguard duty imposition would likely raise steel prices by 7-8%, which in turn could lead to 35-40% upgrade in consensus EDITDA estimates for SAIL .
By Megha Mandavia, ET Bureau | Updated:
MUMBAI: Bank of America Merrill Lynch expects significant earnings upgrade by consensus on all steel stocks after the Directorate General (DG) of Safeguards recommended a 20 per cent safeguard duty on import of hot rolled flat products for 200 days.
Tata Steel and Sajjan Jindal-led JSW Steel are among the steel producers that saw a large hit on profitability as the steelmakers were forced to cut costs to compete with Chinese, Korean and Japanese steel imports.
Safeguard duty imposition would likely raise steel prices by 7-8 per cent, which in turn could lead to 35-40 per cent upgrade in consensus EDITDA estimates for SAIL and 20-25 per cent for JSW Steel, Bank of America Merrill Lynch said in a report.
The case for steel appears to be strong as it is a much bigger employer. SAIL and Tata Steel alone employ around 130,000 people, the brokerage added. The recommendation by the DG has to be approved by Ministry of Finance.
"Given the strong case, we believe the Ministry of Finance will approve the imposition of a provisional safeguard duty on steel. The DG is undertaking the enquiry for the imposition of final safeguard duty which can remain in force for long term," it stated in a report.
According to the brokerage, India witnessed a sharp increase in steel imports so far this financial year. While overall imports rose 67 per cent, imports from free trade agreement countries like Japan and Korea rose a whopping 96 per cent in the same period. As per the FTAs, these countries are liable to pay only 1.2 per cent import duty against the normal 12.5 per cent.
The Reserve Bank of India in its latest financial stability report highlighted that five out of the top 10 private steel producing companies are under severe stress. These companies are struggling with delayed implementation of projects due to delays in land acquisition and environmental clearances among other factors.
Tata Steel and Sajjan Jindal-led JSW Steel are among the steel producers that saw a large hit on profitability as the steelmakers were forced to cut costs to compete with Chinese, Korean and Japanese steel imports.
Safeguard duty imposition would likely raise steel prices by 7-8 per cent, which in turn could lead to 35-40 per cent upgrade in consensus EDITDA estimates for SAIL and 20-25 per cent for JSW Steel, Bank of America Merrill Lynch said in a report.
The case for steel appears to be strong as it is a much bigger employer. SAIL and Tata Steel alone employ around 130,000 people, the brokerage added. The recommendation by the DG has to be approved by Ministry of Finance.
"Given the strong case, we believe the Ministry of Finance will approve the imposition of a provisional safeguard duty on steel. The DG is undertaking the enquiry for the imposition of final safeguard duty which can remain in force for long term," it stated in a report.
According to the brokerage, India witnessed a sharp increase in steel imports so far this financial year. While overall imports rose 67 per cent, imports from free trade agreement countries like Japan and Korea rose a whopping 96 per cent in the same period. As per the FTAs, these countries are liable to pay only 1.2 per cent import duty against the normal 12.5 per cent.
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The Reserve Bank of India in its latest financial stability report highlighted that five out of the top 10 private steel producing companies are under severe stress. These companies are struggling with delayed implementation of projects due to delays in land acquisition and environmental clearances among other factors.
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