The introduction of a 15% export duty on most steel products, up
from zero, and an increase in levies on iron ore and pellets to 45-50%
propelled a sharp slump in metal stocks on Monday.
Shares of Tata Steel, JSW Steel, Jindal Steel, SAIL and NMDC
cracked up to 20% in intra-day trade.
Analysts have now turned pessimistic particularly on metal
companies as the recent policy moves are set to undermine their operational
performance from hereon.
According to Bhavesh Chauhan, Research Analyst, IDBI Capital, hike
in export duty negative for the sector and 15% duty hike means lesser
realisations from exports. Steel companies’ exports range between 10-25% of
sales, Chauhan says adding that margins, already under pressure, likely to
shrink further. Downgrades will happen, evaluation awaited to see if there is
any upside left.
Some brokerages have already initiated rating downgrades on
leading steel stocks as the hike in export duties is expected to lead to a
sharp correction in domestic steel prices.
CLSA, for instance, has reduced domestic steel price estimates by
8-10%. On the back of lower steel prices, the brokerage has cut the Ebitda
estimate for steel companies by up to 24%. It sees no near-term upside
catalysts for the sector, other than a stimulus in China.
ICICI Securities, meanwhile, has highlighted the policy decision
as extremely negative for the steel sector expecting a broad-based multiple
de-rating for the industry. It has also lowered its ratings for most metal
stocks.
The brokerage has broadly assessed a likely Rs 5,000-7,000/te of
impact on EBITDA for integrated steel players, while for unintegrated steel
equities like JSW Steel the impact can be Rs 5,000/te.
“Due to the measures announced by the government, near-term
correction in steel stocks is imminent. We believe the ramification of these
decisions by the government will be felt widely across all parts of the
industry,” says Motilal Oswal
According to Motilal Oswal, the export duty hikes can impact the valuation of
the sector and companies’ ability to invest in capacity growth in the long
term.
On the contrary, the government has reduced excise duties on
petrol and diesel by Rs 8 and Rs 6 per litre, respectively.
Following this, Parbhudas Liladhar has cut its FY23 EPS estimates
for HPCL and BPCL by 56% and 40%, respectively, as elevated oil prices remain
challenging.
According to the brokerage, OMCs ability to reduce high marketing
losses will be contingent on crude price correction, as high inflationary
pressure will prevent meaningful retail price hikes despite excise duty cuts.
[Parbhudas Liladhar]