The Indian steel stocks rallied on the back of higher realisations post-Covid in FY21 and FY22. But as raw material costs caught up and realisations declined, the impact was felt on profitability in FY23 and onwards. Further, import of lower-cost steel from China has added to the woes over the last year, with hopes pinned on a turnaround in Chinese economy to alleviate concerns over low steel price.

With companies expressing optimism on the future, and metal stocks perking up on US Fed rate-cut hopes, here is a look at where things stand for the country’s three leading private sector steel companies.

Although realisations have slipped from the peaks in FY22-23, the strong domestic demand and a higher proportion of value-added portfolio aimed at automobiles and construction have aided companies in maintaining realisations at levels higher than the ones in the past decade

Coal and energy costs rally lagged steel prices but have caught up. While the costs have only marginally moderated in FY24, Q1FY25 and beyond can expect further increase in costs.

With companies in expansion mode, operating leverage and efficiency measures can improve profitability. But an improvement in realisations will be critical to improved profitability.

While companies were conservative on debt metrics in FY22, there has been increased appetite for debt. However, at 1-3.4 times Net Debt to annualised EBITDA in Q1FY25, the ratio is within comfort zone.

The stocks are trading at a premium owing to capacity expansion, strong domestic demand and improvement in profitability. 

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