Top 5 Steel Stocks to Add to Your Watchlist

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Top 5 Steel Stocks to Add to Your Watchlist

Mar 11, 2022

Top 5 Steel Stocks to Add to Your Watchlist

Steel prices in India and worldwide are rising amid the Russia-Ukraine war as well as the increase in oil and coal prices.

This scenario has given India an excellent opportunity to increase its steel exports to European and the Middle East.

By increasing exports, steel companies can also expand their margins as export prices tend to be higher than domestic prices.

Here are five stocks that can benefit from this situation.

#1 Tata Steel

First on our list is Tata Steel, Asia's first integrated private steel company.

The company is primarily engaged in the business of manufacturing and selling finished steel goods.

It's present across the value chain, from the mining of iron ore and coking coal to the distribution of steel, and value-added products.

The company caters to several industries through its broad product portfolio, including automobiles, construction, agriculture, industrial and general engineering. It also has a global presence and caters to the steel needs of over 50 countries across five continents.

In the last five years, Tata Steel's revenue has grown at a steady rate of 7.2% CAGR, mainly driven by growth in volumes and price realisations. Its profit has also grown by 13.5% CAGR during the same period.

The company has been a consistent dividend payer. Its five-year average dividend payout and five-year average dividend yield stands at 32.4% and 2.7%, respectively.

In the latest quarterly results, Tata Steel's revenue grew by 44% year-on-year (YoY) while net profit jumped 140% YoY. Going forward, increasing automobile sales and infrastructure activity in the country is expected to drive up the revenues.

To know more about Tata Steel, check out its factsheet.


#2 JSW Steel

Next on our list is JSW Steel, one of the largest steel producers in the country.

The company's primary business includes the manufacturing and distribution of finished steel and other value-added products.

In the last few years, it has also acquired iron ore mines and ventured into mining. Since then, it has increased its raw material sourcing from captive mines from 4% a few years back to almost 50% in the current fiscal.

JSW Steel has a total manufacturing capacity of 28 MT in India and the USA. It aims to increase its steel capacity to 37.5 MT by 2025 and 45 MT by 2030.

In the last three years, the company has already invested Rs 480 bn in the form of capex.

Its diversified product portfolio caters to automotive, machinery, and general engineering sectors. It also exports its products to over 100 countries across the globe.

In the last five years, JSW Steel's revenue has grown by a CAGR of 9.6%, driven by growing steel volumes due to capacity addition and an increase in the share of value-added products.

Its profit also has grown at a healthy rate of 17.9% due to superior logistics connective and adequate backward integration through multiple captive iron ore and power plants.

The company has also been consistent in paying dividends. Its five-year average dividend payout ratio and five-year average dividend yield stood at 14.6% and 1.1%, respectively.

Its revenue grew by 73.1%, and profit grew by 68.1% in the recent quarterly results. The net profit margin stood at 11.8%.

Going forward, the trend of increasing domestic steel consumption will drive the revenue and volumes upward.

To know more about JSW Steel, check out its factsheet.


#3 Jindal Steel & Power

Third on our list is Jindal Steel & Power, a leading steel producer in the country. The company is engaged in the business of manufacturing steel, power generation and mining.

It has a manufacturing capacity of 8.6 MT of crude steel 9 MT of pellets across three manufacturing plants in India. Jindal Steel aims to increase its steel capacity by 15.9 MT by 2025 and has a capex investment plan of Rs 180 bn in the pipeline.

Its product portfolio ranges from widest flat products to long products. It supplies to several industries, including infrastructure and construction, general engineering, railways, automotive, and capital goods.

The company also exports its products to over 22 countries.

Jindal Steel's revenue has grown at a healthy CAGR of 17.4% in the last five years, driven by higher volumes and realisations. However, it hasn't paid dividends to its shareholders, mainly due to its debt reduction and expansion plans.

In the recent quarterly results, the company's revenue grew by 30% YoY. Its net profit fell due to higher expenses.

Going forward, the revenue is expected to go up due to the undergoing capacity addition.

To know more about Jindal Steel and Power, check out its factsheet.


#4 Steel Authority of India Limited (SAIL)

Next on our list is the largest public-sector steel-making company in India, SAIL.

The company's primary business activities include mining and selling iron ore and manufacturing and selling finished steel and value-added products.

Though the government holds a major stake (65%) in the company, it enjoys operational and financial autonomy.

SAIL has a total manufacturing capacity of 21.5 MT spread across five integrated and three special steel plants in India. It aims to increase its capacity to 29.6 MT by 2030 and has already invested 662.8 bn since 2010.

The company has the most diversified product portfolio offered by any domestic steel company through which it caters to a large number of industries, including road and rail infrastructure, oil and gas, irrigation, power, and airport and port infrastructure.

It currently exports its products to over 30 countries and aims to increase its international presence.

In the last five years, SAIL's revenue has grown at a healthy CAGR of 12%, driven by volume growth and an increase in realisations. Its profit has also grown by a CAGR of 4.5% during the same time.

The company has paid dividends twice in the last five years. Its dividend payout ratio and dividend yield in the financial year 2021 stood at 31.4% and 5.4%, respectively.

In the recent quarterly results, SAIL's revenue grew by 27% and net profit by 8.1%. Going forward, the company's investment in modernisation and expansion plan is expected to pay off, reducing its cost of production.

To know more about SAIL, check out its factsheet.


#5 APL Apollo Tubes

Last on our list is APL Apollo Tubes, the largest player in India's steel tubes and structural products.

The company is engaged in the business of manufacturing branded steel tubes such as ERW steel tubes and galvanised tubes.

It has ten manufacturing facilities in India with a capacity of 2.6 MT that produces over 1,500 varieties of tubes used in urban infrastructure, housing, greenhouses, solar plants, engineering, and irrigation.

APL Apollo Tubes has a 50% market share in steel construction pipes and dominates the category. It also has a pan-India distribution network with a presence in over 50,000 retail stores across 300 towns and cities in India.

In the last five years, the company's revenue has grown at a healthy CAGR of 19.7%, driven by volumes, capacity expansion, and a widening distribution network. Its net profit has grown by a CAGR of 21.8% during the same period.

The company hasn't paid any dividend in the last two years mainly because it has been reducing net debt in its books.

APL Apollo Tubes' revenue grew by 24.1% in the recent quarterly results. Its profit fell because of the higher cost of sales. Its net margin stood at 4%.

Going forward, the company is positive about volume growth driven by the operations in the new plant, which is expected to start soon.

To know more about APL Apollo Tubes, check out its factsheet.


Snapshot of top steel stocks in India from Equitymaster's Stock Screener

Here's a quick view of the top companies based on their financials.

Please note that these parameters can be changed according to your selection criteria.

This will help you identify and eliminate stocks that are not meeting your requirements and emphasise those stocks that are well inside the metrics.

Why should you invest in steel companies?

The steel sector is in its growth phase.

Over the last few years, several government initiatives have boosted the demand for steel despite a slowdown in economic growth.

Right from the National Steel Policy in 2017 to Atmanirbhar Bharat, all aim to increase the country's steel production and consumption.

Moreover, since steel is used in several industries such as automobile, infrastructure, construction and energy, growth in any of these industries will ramp up the steel demand.

With so many factors positively affecting the industry, a new investment opportunity is up for grabs.

However, one needs to understand that the steel industry is cyclical in nature, and the steel demand is higher during economic booms and falls during recessions.

Apart from this, one needs to also check the fundamentals and valuations of the company before considering investing in it.

Happy Investing!

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...

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