JSW Steel and Tata Steel poised for margin recovery as domestic demand remains robust: Siddhartha Khemka

The Indian steel industry is emerging as a rare bright spot in an otherwise subdued global metals landscape. While major global markets remain locked in low growth cycles, domestic steel demand continues to grow steadily, making India the fastest growing steel market in the world. The sector is expected to achieve an estimated 8-10% CAGR in volume during 25-28, supported by structural domestic demand and continued capacity expansions.India now accounts for almost 8% of global crude steel production, up from around 5% in CY10, with production growing at a CAGR of 6% over the past five years, significantly outperforming global peers. In 11MCY25, global crude steel production fell 3% year-on-year to 1.65 billion tonnes, led by a 5% contraction in China. India, on the other hand, recorded robust growth of 10% to 149 million tonnes, supported by continued consumption momentum in the infrastructure, real estate, transport and energy transition sectors. Finished steel consumption has grown at a CAGR of 6.4% over the past fifteen years, exceeding real GDP growth, and is expected to continue at around 7% CAGR over the 25-28 period.

On the supply side, domestic crude steel capacity has expanded significantly from 142 million tonnes in FY20 to almost 200 million tonnes per annum in FY25, with further brownfield and greenfield expansions planned. Stronger balance sheets as a result of continued deleveraging in recent years allow producers to finance growth without materially putting pressure on debt benchmarks.Globally, China’s transition from a demand driver to a source of excess supply has put pressure on steel prices. Chinese exports rose to 111 million tonnes in CY24, putting pressure on global benchmarks, with Chinese hot-rolled coil prices falling from US$688 per tonne in March 2023 to US$465 per tonne in December 2025. However, increasing protectionist measures and mandatory production cuts are expected to moderate export flows in the CY26-CY28 period, aiding price stabilization. Domestically, safeguard duties and stricter import norms have curbed inbound shipments, leading to a recovery in steel prices towards Rs 49,000 per tonne by December 2025. With favorable input costs and better pricing visibility, spreads are expected to gradually widen over FY27 to FY28, supporting a steady earnings recovery.

Overall, the sector’s structural demand drivers, disciplined capacity expansion and improving pricing environment position Indian steelmakers for a multi-year growth trajectory despite lingering global uncertainties.

JSW Steel: Target Rs 1350

JSW Steel is positioned for structurally higher profits as Chinese supply moderation and rising value-added mix support domestic prices. Management expects demand growth of 7-9% in FY27, while aggressive capacity expansions and higher indigenous raw materials support long-term competitiveness. The 3Q26 showed resilience due to volume, despite price pressure. Revenue grew 11% YoY to Rs 460 billion, EBITDA rose 19% YoY to Rs 66 billion, but declined QoQ due to weaker NSR and higher costs. PAT adjustment of Rs 11.9 billion missed estimates due to increased minority stake. We maintain a purchase, supported by margin recovery and capacity expansion. Management expects margins to improve in the fourth quarter of 2026 due to price recovery and strong demand. We estimate double-digit revenue growth over FY26-28E and EBITDA per tonne to recover to ~Rs 13,500 in FY27/28E, aiding deleveraging.

Tata Steel: Target Rs 240

Tata Steel’s fundamentals remain supported by healthy domestic demand and strong volume momentum, partially offset by near-term pricing pressure. Rising steel prices and disciplined cost measures support the improving outlook, while European restructuring initiatives and capacity expansions boost visibility of medium-term earnings despite continued global trade-related volatility. Q3’26 performance itself was broadly in line, with revenues of Rs356 billion (+9% YoY, +3% QoQ), driven by strong domestic deliveries. EBITDA of Rs77.3 billion reflected robust volumes but subdued ASPs, while APAT surprised positively at Rs41.7 billion despite weaker prices. We estimate a gradual improvement in consolidated profitability over FY26-27E, driven by higher steel revenues, continued domestic volume growth and easing cost pressures in Europe. Operating leverage from capacity additions and restructuring benefits should support margin recovery and stronger cash flow generation.

(The author Siddhartha Khemka, Head of Research – Wealth Management, Motilal Oswal Financial Services)

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