Tata Steel vs JSW Steel: Which Steel Stock is Better?

India is the second-largest producer of steel with a capacity of 143.9 million tonnes per annum (MT).

It is also the third-largest consumer of steel with a per capita consumption of 72.3 kg.

With steel contributing almost 2% to India's gross domestic product and employing almost half a million people, it is a strategically important industry for the country.

The government aims to boost this industry by increasing the capacity to 300 MT and per capita consumption to 160 kg by 2030.

While several steel companies are set to benefit from this initiative, two well-known private players will also benefit from the growth of this industry.

They are Tata Steel and JSW Steel.

In this article, we compare the financials, fundaments, and valuations of both companies.

Business Overview

Tata Steel is the steel arm of the prestigious Tata Group. It is primarily involved in the business of mining, manufacturing steel, and selling finished steel and value-added products and solutions.

Its product portfolio caters to the automotive, construction, industrial, and general engineering sectors.

The company is also the world's most geographically diversified steel producer in over 50 countries.

JSW Steel, on the other hand, is a part of the JSW Group and is involved in the business of manufacturing and selling iron and steel products.

It became India's largest steel producer after it acquired Bhushan Power and Steel Limited (BPSL) in 2021.

The company has a diversified product portfolio used in the automotive, general engineering, and project and construction sectors.

From 2019, the company has acquired iron ore and coking coal mines marking its entry into mining.

Tata Steel vs JSW Steel Business Overview

	Tata Steel	JSW Steel
Products	Hot rolled Cold rolled Coated coil Tubes Rebar Wire rods	Hot rolled Cold rolled Colour coated products Galvanised Galvalume TMT rods Wire rods Special alloy steel Avante steel doors
Key Segments	Agriculture Automotive Contruction Consumer goods Energy and Power Engineering Material handling	Automotive General Engineering Machinery Projects and construction
Competitive Advantage	Captive iron ore and coking coal mines Low cost of manufacturing Diversified global presence Expanding to adjacent businesses beyond steel	Largest steel exporter in India Captive iron ore High share of value added products in revenue Geographical advantage Low cost capex execution
Key Risks	Raw material pricing risks Cyclicality of steel industry	Raw material pricing risks Cyclicality of steel industry

Data Source: Annual Reports

Revenue growth

Though Tata Steel's revenue is twice that of JSW Steel, its revenue has grown at a CAGR of 7.2% against 9.6% of JSW Steel in the last five years.

JSW Steel's revenue growth was led by capacity addition, growing domestic economic activity, and rising steel prices.

For Tata Steel, an increase in sales volume, a growing share of value-added products, and increasing realisations have driven the revenue growth.

Tata Steel vs JSW Steel Revenue Growth (2016-2021)

	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Revenue (in m)
Tata Steel	1,108,981	1,343,095	1,687,250	1,507,993	1,571,898
JSW Steel	508,250	708,220	849,610	738,720	805,350
Revenue Growth (%)
Tata Steel		21.1%	25.6%	-10.6%	4.2%
JSW Steel		39.3%	20.0%	-13.1%	9.0%

Source: Equitymaster

Going forward, both companies expect their revenues to grow at a healthy pace driven by post-covid recovery and government initiatives to boost infrastructure, housing, and the automobile industry.

Volume growth

Tata Steel's volumes have grown at a CAGR of 3.6% in the last five years. On the other hand, JSW Steel's volumes saw a muted growth of 0.4% (CAGR) during the same period.

Tata Steel vs JSW Steel Sales Volume Growth (2016-2021)

	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Sales Volume (in m tonnes)
Tata Steel	23.9	25.3	26.8	26.9	28.5
JSW Steel	14.7	15.6	15.6	14.9	15
Sales Volume Growth (%)
Tata Steel		5.8%	6%	0.3%	6%
JSW Steel		5.9%	0.3%	-4.5%	0.3%

Source: Equitymaster

A slowdown in economic growth has slightly impacted the volume growth. However, after a sharp recovery of the sector post-covid, volumes are expected to increase.

Operating expenses per tonne

Operating expenses per tonne is the company's total operating cost to produce one tonne of steel. Lower the number, the better.

The cost per tonne for Tata Steel has grown at a CAGR of 5.5% against a 7.6% of JSW Steel in the last five years.

However, Tata Steel's cost per tonne is higher than JSW Steel's. This indicates JSW Steel has a cost advantage over Tata Steel.

This is mainly due to its captive iron ore, coking coal mines, and a captive power plant that help in maintaining its costs low.

Tata Steel vs JSW Steel Operating Expenses/Tonne (2016-2021)

Rs m	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Tata Steel	37,883	42,655	50,121	48,128	49,465
JSW Steel	27,488	35,119	39,428	38,265	39,656

Data Source: Annual Reports and Ace Equity

EBITDA per tonne

Earnings before interest, tax, depreciation and amortisation (EBITDA) per tonne shows how much the company is earning against every tonne of finished steel it produced.

Higher the number, the better.

Tata Steel vs JSW Steel EBITDA/Tonne (2016-2021)

Rs m	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Tata Steel	5,087	8,662	11,300	7,211	12,348
JSW Steel	7,801	9,195	11,478	7,733	13,749

Data Source: Annual Reports and Ace Equity

Though EBITDA/tonne for Tata Steel has grown at a CAGR of 19.4% against 12% of JSW Steel in the last five years, JSW Steel has a higher EBITDA/tonne.

Higher realisations and lower costs have led to higher EBITDA/tonne for JSW Steel.

Profitability

Two indicators help determine a company's profitability - operating profit margin and net profit margin.

Operating profit margin shows what percentage of revenue is the income earned from operating activities. In the case of the steel sector, operating activities include selling finished steel and other value-added products.

In contrast, the net profit margin shows what percentage of revenue the income is after deducting all operating and non-operating expenses.

Tata Steel vs JSW Steel Profit Margins (2016-2021)

	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Operating Profit Margin (%)
Tata Steel	8.0%	22.5%	17.6%	8.7%	18.8%
JSW Steel	24%	20.6%	22.4%	15.1%	25%
Net Profit Margin (%)
Tata Steel	-3.8%	13.3%	5.3%	0.7%	5.0%
JSW Steel	6.8%	8.6%	8.9%	5.5%	9.9%

Source: Equitymaster

The five-year average operating profit margin for Tata Steel stood at 15.1% against 21.4% of JSW Steel.

JSW Steel is leading in terms of high operating profit margin indicating its operating efficiency. It is also leading in terms of net profit margin with a five-year average of 7.9% compared to 4.1% of Tata Steel.

Lower operating and non-operating costs have helped JSW Steel maintain higher profit margins than Tata Steel.

Manufacturing facilities

Tata Steel has a total manufacturing capacity of 33 million metric tonnes per annum (MT) across five manufacturing facilities in India and abroad.

In India, it has a total capacity of 19.6 MT and by 2030 it aims to double its capacity to 40 MT through greenfield and brownfield expansions.

In the UK, the company's plant has a capacity of 5.1 MT while in Europe the capacity is 7.3 MT.

JSW Steel, on the other hand, has a total capacity of 28 MT in India and the USA across fourteen manufacturing plants and four downstream facilities.

It is heavily investing in capex to increase its capacity to 37.5 MT by 2025 and to 45 MT by 2030. It has already deployed Rs 480 bn towards this in the last three years.

The company also acquired BPSL in 2021 and has become the largest steel manufacturer in the country.

Distribution network

Tata Steel has a network of 27 sales offices with 18 stockyards, 262 distributors, and 14,688 dealers for its business-to-customer (B2C) division to sell its products.

On the other hand, JSW Steel sells its products through a network of over 16,000 retail outlets covering over 600 districts in India. It also exports to over 100 countries across five continents.

Research and Development (R&D)

Innovation is an integral part of any company's growth. Both the companies are investing heavily in R&D.

JSW Steel has a strategic collaboration with JFE Steel of Japan. It has access to state-of-the-art technologies that will help produce high-value special steel products.

It is also digitally transforming every aspect of its business by adopting technologies such as artificial intelligence, big data, advanced robotics, and hybrid cloud.

Tata Steel is leveraging technology to develop new products improve operational efficiency and sustainability. In the financial year 2021, it developed 79 new products. It also has 109 patents under its name.

Dividends

Dividend stocks can be a good source of passive income for investors looking for a secondary source of income.

To know if the company is paying good dividends, one can look at two indicators - dividend payout ratio and dividend yield.

The dividend payout ratio measures the percentage of the earnings paid as dividends while dividend yield measures what percentage of the share price is the dividend.

Tata Steel vs JSW Steel Dividend Ratios (2016-2021)

	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Dividend Payout Ratio (%)
Tata Steel	-23.2%	6.9%	17.6%	122.4%	38.3%
JSW Steel	15.7%	12.7%	13%	12%	19.8%
Average Dividend Yield (%)
Tata Steel	2.5%	1.6%	2.4%	2.5%	4.7%
JSW Steel	0.2%	1.3%	1.2%	0.9%	2.1%

Source: Equitymaster

The five-year average dividend payout ratio for Tata Steel and JSW Steels stands at 32.4% and 14.6%, respectively.

In the past five years, Tata Steel has paid higher dividends than JSW Steel to its shareholders.

Tata Steel also has a higher dividend yield. The five-year average dividend yield for Tata Steel is 2.7% and for JSW Steel is 1.1%.

Inventory days

Inventory days measure how quickly the company can sell its finished goods inventory. Lower the number, better.

Tata Steel vs JSW Steel Inventory Days (2016-2021)

Inventory Days	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Tata Steel	64	119	72	98	84
JSW Steel	28	27	29	31	70

Source: Equitymaster

The five-year average inventory days for Tata Steel is 87, while for JSW Steel is 37. This indicates JSW Steel has a better sales performance than Tata Steel. It is also managing its inventory better.

Debt-to-equity ratio

A company uses both equity and debt to run a business. However, the amount of debt it uses indicates its fixed obligations. Higher the leverage, higher will be the fixed charges such as interest expense which will lower the profitability.

Tata Steel vs JSW Steel Debt to Equity Ratio (2016-2021)

Debt to Equity Ratio (x)	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Tata Steel	1.7	1.2	1.2	1.3	1
JSW Steel	1.4	1.1	0.9	1.2	1.1

Source: Equitymaster

The debt-to-equity ratio for Tata Steel in the financial year 2021 stood at 1x, whereas for JSW, Steel stood at 1.1x.

Both companies have reduced their debt considerably over the last five years, indicating a strong credit profile.

Return on capital employed (ROCE)

Return on capital employed measures what percentage of the capital is profit. A high ROCE indicates a more efficient use of capital.

Tata Steel vs JSW Steel Return on Capital Employed (2016-2021)

ROSE (%)	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Tata Steel	3.7%	19.8%	15.6%	3.6%	14.4%
JSW Steel	16.2%	19%	23.5%	9.1%	16.6%

Source: Equitymaster

The five-year average ROCE of Tata Steel is 11.4% against 16.9% of JSW Steel. It shows that JSW Steel uses its capital more efficiently than Tata Steel.

Valuations

The most common valuations ratios that investors use are price to earnings (P/E) and price to book value (P/BV).

P/E ratio is a measure that relates a company's share price to its earnings. In contrast, the P/BV ratio relates a company's share price to its book value.

A high P/E or P/BV ratio indicates the shares are overvalued when compared to their peers, while a low ratio indicates it is undervalued.

Tata Steel and JSW Steel's five-year average P/E ratio stands at 12 and 23, respectively. The current P/E of Tata Steel is 8.2, and JSW Steel is 9.2.

In terms of P/E, JSW Steel's shares are slightly more expensive when compared to Tata Steel's shares.

Tata Steel vs JSW Steel Valuation Ratios (2020-2021)

	P/BV Ratio	5-year average P/BV	Average P/E Ratio	5-year average PE
Tata Steel	0.9	1	8.2	12
JSW Steel	1.6	3.7	9.2	23

Source: Equitymaster

Again, in terms of P/B, JSW Steel's shares are priced at a premium to Tata Steel's shares. The current P/BV of Tata Steel is 0.9, and JSW Steel's is 1.6.

The five-year average P/B ratio of Tata Steel and SAIL is 1 and 3.7, respectively.

However, both the shares are priced lower when compared to their five-year average P/E and P/BV.

Sustainability efforts

India is the second-largest steel producer globally and makes a considerable impact on the environment. It is one of the largest contributors to CO2 emissions.

It is therefore essential for steel companies to be more responsible and take measures to reduce their resource consumption and carbon footprint to be sustainable.

Tata Steel is leveraging technology to use efficient production routes to reduce CO2 emissions and minimise waste generation. It's also upgrading its air pollution control equipment to control dust emission intensity.

The company has increased the use of renewable resources. It has been increasing the capacity of its steel recycling business and is utilising 100% of its solid waste.

JSW Steel, on the other hand, has identified 17 sustainable focus areas to emerge as a planet-friendly steel company.

The company is continuously optimising its resource consumption, carbon emission, waste footprint by sticking to the standards it set for itself, intending to combat climate change.

Impact of Covid-19

The steel industry saw two contrasting halves in one year. The first half saw the industry come to a standstill due to the lockdown. The second half saw a sharp V-shaped recovery as the economy opened up for operations.

As the domestic demand was low due to the pandemic, Tata Steel and JSW Steel saw a rise in exports.

Once the domestic demand started picking up, both the companies saw their monthly volumes go up to pre-covid levels.

Going forward, increased spending on infrastructure, high demand for automobiles and real estate, and growing consumer demand will boost the steel industry.

The steel industry could bounce back soon, mainly due to strong fundamentals, even during a challenging year.

Future prospects

The global and domestic steel industry is in its growth phase mainly due to the fiscal stimulus packages given by various governments to boost infrastructure.

In India, government initiatives such as Atmanirbhar Bharat and Product Linked Incentive Scheme are expected to boost the industries that use steel as raw material, indirectly boosting the steel industry.

The steel demand will be high in the medium term. Both Tata Steel and JSW Steel are well-positioned to capitalise on this demand.

To increase its steel manufacturing capacity, Tata Steel is investing close to Rs 8 bn in capex. Additionally, it's investing in increasing its scope in adjacent businesses like new materials, services, and solutions.

JSW Steel, on the other hand, has already invested Rs 490 bn in capex to increase its capacity to 45 MT by 2030 from the current 28 MT levels.

Which is better?

JSW Steel is leading in revenue growth with lower costs per tonne and higher EBITDA per tonne. Moreover, it is also leading in profit margins and inventory management.

However, it has lower volume growth and pays lower dividends than Tata Steel. Also, JSW Steel's shares are priced at a premium compared to Tata Steel's shares.

Both the companies have adequate backward integration and a high share of value-added products in their revenue.

Moreover, both the companies are expanding their current capacities to capture the growing steel demand.

However, before choosing a company to invest in, it is important to check its fundamentals and valuations to help make an informed decision.

Still confused which is better?

Use our feature-rich comparison tool, which draws a detailed comparison between any two companies. This tool also includes a graphical analysis making it easy for you to see trends!

Tata Steel vs JSW Steel

You can also compare both the companies with their peers.

Tata Steel vs SAIL

JSW Steel vs Jindal SAW

Tata Steel vs Kalyani Steel

JSW Steel vs Maharashtra Seamless

Check out the Tata Steel factsheet and JSW Steel factsheet for a detailed analysis.

You can also check out the latest quarterly results for Tata Steel and JSW Steel.

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