CLSA cuts EBITDA forecasts for Tata Steel, JSPL, and Vedanta

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CLSA cuts EBITDA forecasts for Tata Steel, JSPL, and Vedanta
Credit: © Reuters.

Amidst the challenges posed by rising raw material costs and project delays, CLSA has adjusted its EBITDA outlook for major steel players in India. The brokerage firm has revised its forecasts down for Tata Steel and Jindal Steel & Power Limited (JSPL) by 1-12%, and for Vedanta (NYSE: VEDL ) by 7-12%. This revision comes in response to the shrinking Chinese steel spreads, which have fallen to $100 per tonne, marking a low not seen in over ten years.

Despite the downward revision in EBITDA forecasts, Indian steel companies could benefit from regional demand trends. Integrated mills might see price support in the short term due to their cost-effective iron ore supply and potential demand growth within the region. Non-integrated mills are also set to gain from these trends.

The Chinese market has experienced several false starts this year, casting doubt on the persistent rise in commodity demand. Nevertheless, there could be an upside risk to regional spreads which may impact the Indian market, especially considering the significant capacity expansions planned.

In terms of target prices, CLSA has maintained stability for Tata Steel and Vedanta. However, JSPL saw a modest target price reduction to ₹715. The target price for Hindalco remains at ₹590, taking into account the valuations of its subsidiary Novelis and Hindalco's adherence to its capital allocation policy.

JSPL's transition towards becoming a pure-play steel company is marked by an optimistic growth trajectory and a premium valuation. Yet, the company must navigate macroeconomic uncertainties and policy changes that could affect its market performance going forward.

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