Macquarie's latest deep dive into India's metal sector offers a notably optimistic view on steel, driven by robust domestic demand and supportive policies. The brokerage highlighted stable and elevated trajectory of steel prices.
JSW Steel is its top pick among Indian players in this favourable environment.
Domestic Steel: Riding Growth Wave
Macquarie's conviction for Indian steel companies is rooted in strong domestic consumption and stable pricing, significantly aided by strategic policy support. It projected a robust 7-8% Compound Annual Growth Rate for steel demand from FY25 to FY28, ensuring high capacity utilisation across industry, which comfortably sits above 85%.
A 12% import safeguard levy acts as a protective shield, allowing Indian steel prices to command a premium over imports. Further positive tailwinds are expected from China, with its steel exports anticipated to decline in CY25-26E from their 2024 peak, alleviating global supply pressures and benefiting Indian producers.
De-leveraging Trends And Macquarie's Top Pick
Macquarie forecasts a healthy Return on Equity of 12-13% by fiscal 2026, with further improvements anticipated in financial year 2027. Net debt for these firms likely peaked in FY25, signalling a period of substantial de-leveraging ahead, the brokerage highlighted.
Improving financial health, coupled with high operational efficiency, positions the sector favourably. While the broader outlook for metals is strong, Macquarie does issue a note of caution regarding Hindalco Industries' global downstream business, where near-term uncertainties could temper its earnings and stock upside. Amid this landscape, JSW Steel Ltd. stands out as Macquarie's top pick, seen in the best position to leverage India's steel consumption story.
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