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's 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's 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's primarily involved in the business of mining, manufacturing steel, and selling finished steel as well as 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.

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

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 total revenue is nearly twice that of JSW Steel, its revenue has grown at a CAGR of 17.2% against 23.5% 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 (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue (in m)
Tata Steel	1,343,095	1,687,250	1,507,993	1,571,898	2,439,592
JSW Steel	708,220	849,610	738,720	805,350	1,463,710
Revenue Growth (%)
Tata Steel	21.1%	25.6%	-10.6%	4.2%	55.2%
JSW Steel	39.3%	20%	-13.1%	9%	81.7%

Source: Equitymaster

2022 was a remarkable year for the steel industry. The entire sector reported its best financial performance. All of this was on the back of an upswing in the steel cycle which allowed steel companies to scale their businesses.

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

Volume growth

Tata Steel's sales volumes in India and Europe have grown at a CAGR of 5.3% in the last five years. On the other hand, JSW Steel's volumes have grown by a 4.3% (CAGR) during the same period, largely supported by the double digit jump in the year ending 2022.

Tata Steel vs JSW Steel Sales Volume Growth (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Sales Volume (in m tonnes)
Tata Steel	25.3	26.8	26.9	28.5	31
JSW Steel	15.6	15.6	14.9	15	18.2
Sales Volume Growth (%)
Tata Steel	5.8%	6%	0.3%	6%	8.9%
JSW Steel	5.9%	0.3%	-4.5%	0.3%	21.6%

Source: Company Annual Report

The sharp increase in volume was led by the strong post-covid recovery in demand.

Going forward the volumes are expected to grow in line with the economic activity in the country.

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 8.5% against a 17% of JSW Steel in the last five years.

In 2021-22, JSW Steel had to incur higher cost per tonne on account of higher raw material prices the company imports (coking coal). Tata Steel did not bear this brunt as the company sources most of the required raw materials from its captive mines in India.

However, barring this year, Tata Steel's cost per tonne has been higher than JSW Steel's, indicating that the company has a cost advantage over Tata Steel. A primary reason for higher costs in Tata Steel are the European, UK and the Middle Eastern markets it operates in.

These markets have a higher costs of production compared to the Indian market. Therefore, the company's consolidated business reports a higher cost per tonne compared to JSW Steel.

Tata Steel vs JSW Steel Operating Expenses/Tonne (2017-2022)

Rs m	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Tata Steel	42,655	50,121	48,128	49,465	56,994
JSW Steel	35,119	39,428	38,265	39,656	60,306

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 (2017-2022)

Rs m	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Tata Steel	8,662	11,300	7,211	12,348	21,626
JSW Steel	9,195	11,478	7,733	13,749	21,048

Data Source: Annual Reports and Ace Equity

Though EBITDA/tonne for Tata Steel has grown at a CAGR of 33.6% against 21.9% of JSW Steel in the last five years, JSW Steel has a higher EBITDA/tonne.

In the last five years, higher realisations and lower costs have supported a higher EBITDA per tonne for JSW Steel. However, this year Tata Steels international operations have expanded their profitability, resulting in a higher consolidated EBIDTA per tonne.

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 after deducting operating costs. 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 (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Operating Profit Margin (%)
Tata Steel	22.5%	17.6%	8.7%	18.8%	26%
JSW Steel	20.6%	22.4%	15.1%	25%	26.1%
Net Profit Margin (%)
Tata Steel	13.3%	5.3%	0.7%	5.0%	16.8%
JSW Steel	8.6%	8.9%	5.5%	9.9%	13.7%

Source: Equitymaster

The five-year average operating profit margin for Tata Steel stood at 18.7% against 21.8% of JSW Steel.

JSW Steel is leading in terms of high operating profit margin indicating its operating efficiency. It's also leading in terms of net profit margin with a five-year average of 9.3% compared to 8.2% of Tata Steel.

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

Moreover, Tata Steel's low profitability in the international business and higher interest payments have also dragged the company's profitability.

Manufacturing facilities

Tata Steel has a total manufacturing capacity of 34 million metric tonnes per annum (MT) across five manufacturing facilities in India and abroad.

In India, it has a total capacity of 20.6 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 28.5 MT in India and the USA across fourteen manufacturing plants and four downstream facilities.

It's heavily investing 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's 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

High 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 pay-out 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 (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Dividend Payout Ratio (%)
Tata Steel	6.9%	17.6%	122.4%	38.3%	15.2%
JSW Steel	12.7%	13%	12%	19.8%	20.8%
Average Dividend Yield (%)
Tata Steel	1.6%	2.4%	2.5%	4.7%	4.3%
JSW Steel	1.3%	1.2%	0.9%	2.1%	2.8%

Source: Equitymaster

The five-year average dividend pay-out ratio for Tata Steel and JSW Steels stands at 40.1% and 15.7%, 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 3.1% and for JSW Steel is 1.7%.

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 (2017-2022)

Inventory Days	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Tata Steel	119	72	98	84	64
JSW Steel	27	29	31	70	36

Source: Equitymaster

The five-year average inventory days for Tata Steel is 87, while for JSW Steel is 34. This indicates JSW Steel has a better sales performance than Tata Steel. It's 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 (2017-2022)

Debt to Equity Ratio (x)	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Tata Steel	1.2	1.2	1.3	1	0.4
JSW Steel	1.1	0.9	1.2	1.1	0.9

Source: Equitymaster

The debt-to-equity ratio for Tata Steel in the financial year 2022 stood at 0.4x, whereas for JSW, Steel stood at 0.9x.

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

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 (%)	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Tata Steel	19.8%	15.6%	3.6%	14.4%	34.6%
JSW Steel	19%	23.5%	9.1%	16.6%	27%

Source: Equitymaster

The five-year average ROCE of Tata Steel is 17.7% against 19% 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's undervalued.

Tata Steel and JSW Steel's five-year average P/E ratio stands at 7 and 10.1, respectively. The current P/E of Tata Steel is 2.8, and JSW Steel is 6.6.

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

Tata Steel vs JSW Steel Valuation Ratios (2021-2022)

	P/BV Ratio	5-year average P/BV	Average P/E Ratio	5-year average PE
Tata Steel	0.9	1.1	2.8	7
JSW Steel	2.1	2.5	6.6	10.1

Source: Equitymaster

Again, in terms of P/B, JSW Steel's shares are trading at a premium to Tata Steel's shares. The current P/BV of Tata Steel is 0.9, and JSW Steel's is 2.1.

The five-year average P/B ratio of Tata Steel and SAIL is 1.1 and 2.5, 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.

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.

During the financial year ending 2022, Indian steel consumption grew to 106 MT from the pre-pandemic level of 100 MT. Despite the export duties imposed on steel in May 2022, steel demand is expected to remain 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. It's also investing in increasing its scope in adjacent businesses like new materials, services, and solutions.

Despite the large capital outlay, the company is expected to generate strong cashflows that will help it repay its debt. This will strengthen its balance sheet while boosting net profitability further.

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. The company's profits show little room for expansion in the future. However, once the new capacity comes online, the sales should grow.

Which is better?

This year, JSW and Tata Steel share the same levels of profitability. However, JSW Steel 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 it's 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.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

FAQs on Penny Steel Stocks

1) Which are the Best Steel Stocks in India?

Best steel stocks are the ones which have good profitability, low debt to equity ratio, have high ROCE (return on Capital employed), which pay decent dividends and contribute something towards exports.

The sector is in a growth phase and the best steel stocks in India can immensely benefit with so many factors positively affecting the industry.

Some of the better steel stocks in India include:

• JSW Steel
• Tata Steel
• Jindal Steel and Power
• SAIL
• APL Apollo Tubes
• Vedanta
• Ratnamani Metals & Tubes
• Shyam Metalics & Energy
• Apollo Tricoat Tubes

You can visit our list of steel stocks to track here...

2) Are there any Steel sector Penny Stocks in India?

Jindal SAW, SAIL, Jayaswal Neco, Sunflag Iron and Gallant Ispat are among the steel sector penny stocks in India.

To find out the entire list, check out our list of steel stocks in India.

3) Where can we find the List of Steel Stocks in India?

You can find the list of steel stocks in India on BSE and NSE website. However, with so many companies listed on the bourses and abundant information, it becomes cumbersome to filter out the best steel stocks in India.

That is why we recommend you check Equitymaster's Indian stock screener to find a list of Top Steel Companies in India.