JSW is an excellent buy at Rs 194

The steel industry is likely to benefit from the new GST rate for steel, which has been finalised at 18%. With key inputs like coal and iron ore pegged at the lowest slab of 5%, this could lower input costs. Combined with a substantial slash in transport costs due to a unified and standard tax rate under GST, this is likely to help steel companies reeling under large debt and also keep steel prices stable. The new tax structure will be neutral for the steel sector, but there may be collateral gains for the industry, which was under rough weather until recently. With CENVAT rules being replaced by GST, the credit cycle will become smooth, thereby improving the visibility of revenues and increasing liquidity and availability of working capital. The move will bring down the input cost and would lead to stabilisation of prices and more and more expansion of steel plants would take place, benefiting the steel sector. The new steel policy enshrines the long term vision of the government to give impetus to the steel sector. It seeks to enhance domestic steel consumption and ensure high quality steel production and create a technologically advanced and globally competitive steel industry. The aforesaid policy seeks to increase per capita steel consumption to the level of 160 kg by 2030, from the existing level of around 60 kg. Incidentally, the global average per capita steel consumption is way ahead at 208 kg. The new policy has also set an aim for India to become a net exporter of steel by 2025-26. On the raw material front, the policy aims to increase the supply of domestic coking coal, a key steel-making input to cut dependence on imports by half. Government’s decision imposing an anti-dumping duty on China, Japan, Russia, Indonesia, Brazil and South Korea will benefit domestic steel mills in a big way. The protection for five years will certainly offer long term benefits to Indian steel mills, as the domestic producers will be guarded against cheaper imports. Large Indian steel companies like SAIL, Tata Steel and JSW Steel are going to better their performance in the foreseeable future on the back of many positives. JSW Steel reported a healthy set of Q4FY17 numbers: the better than expected performance was primarily driven by healthy realisation. It registered healthy sales volume growth of 23% in FY17 on the back of completion of capacity expansion with consolidated PAT at Rs 1008.6 crore. JSW Steel has meanwhile outlined a capex of Rs 26,815 crore for new investment projects to expand steel making capacity, lower operating costs and improve product mix. The JSW stock, currently quoting at Rs 194 is an excellent portfolio buy and can achieve a price target of Rs 255 in six months.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.