Despite recent run-up, stocks still not reflecting fundamental positives, in our view. We
cite growth opportunities, sustainable transformation of costs and quality, and the growing
probability of improvement in these companies’ balance sheets. We believe Tata Steel
(TISC.OB, Rs669), JSW Steel (JSTL.BO, Rs1,376), and SAIL (SAIL.BO, Rs224) all rated
Overweight (in descending order of attractiveness) offer good entry points on a one-year
perspective, in our view.
Valuations have upside, especially for Tata and JSW. Investors fear deep and sustained
losses from Corus and poor profitability at JSW due to its low self-sufficiency in raw materials. We
expect these fears to subside, however, with healthy results in the next three to four quarters.
We adjust price targets, earnings forecasts: Our new forecasts reflect increases to our steel
price assumptions, pushing up our EBITDA/ton projections. For SAIL, we curtail our production
assumptions, lowering our F2011–13 EBITDA forecasts. We also increase JSW’s and SAIL’s
share count.
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