JSW Steel, Tata Steel poised for margin recovery as domestic demand holds firm: Siddhartha Khemka

India’s steel industry is emerging as a rare bright spot in an otherwise subdued global metals landscape. While major global markets remain trapped in low-growth cycles, domestic steel demand continues to expand steadily, positioning India as the fastest-growing steel market worldwide. The sector is expected to deliver an estimated 8–10% volume CAGR over FY25–FY28, supported by structural domestic demand and ongoing capacity additions.

India now accounts for nearly 8% of global crude steel output, up from about 5% in CY10, with production growing at a 6% CAGR over the past five years, significantly outperforming global peers. In 11MCY25, global crude steel output declined 3% year on year to 1.65 billion tonnes, led by a 5% contraction in China. In contrast, India recorded robust 10% growth to 149 million tonnes, underpinned by sustained consumption momentum across infrastructure, real estate, transport and energy transition sectors. Finished steel consumption has grown at a 6.4% CAGR over the past 15 years, outpacing real GDP growth, and is projected to sustain at around 7% CAGR over FY25–FY28.

On the supply side, domestic crude steel capacity has expanded sharply to nearly 200 million tonnes per annum in FY25 from 142 million tonnes in FY20, with further brownfield and greenfield expansions underway. Stronger balance sheets following sustained deleveraging over recent years are enabling producers to fund growth without materially stretching leverage metrics.

Globally, China’s transition from a demand engine to a source of oversupply has pressured steel prices. Chinese exports surged to 111 million tonnes in CY24, depressing global benchmarks, with Chinese hot-rolled coil prices falling to USD 465 per tonne in December 2025 from USD 688 per tonne in March 2023. However, rising protectionist measures and mandated production cuts are expected to moderate export flows over CY26–CY28, aiding price stabilisation. 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 benign input costs and improved pricing visibility, spreads are projected to gradually expand through FY27–FY28, supporting a steady earnings recovery.

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

JSW Steel: Target Rs 1350

JSW Steel is positioned for structurally stronger earnings as safeguard duty, China’s supply moderation and rising value-added mix support domestic pricing. Management guides 7–9% demand growth in FY27, while aggressive capacity additions and higher captive raw materials underpin long-term competitiveness. 3QFY26 showed volume-led resilience despite pricing pressure. Revenue grew 11% YoY to Rs 460b, EBITDA rose 19% YoY to Rs 66b but fell QoQ on weaker NSR and higher costs. Adj. PAT at Rs 11.9b missed estimates due to elevated minority interest. We maintain a Buy, supported by margin recovery and capacity ramp-up. Management expects 4QFY26 margins to improve with price recovery and strong demand. We estimate double-digit revenue growth over FY26–28E and EBITDA per tonne rebounding 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 pressures. Rising steel prices and disciplined cost actions underpin an improving outlook, while European restructuring initiatives and capacity ramp-ups enhance medium-term earnings visibility despite ongoing global trade-related volatility. In 3QFY26, standalone performance was broadly in line, with revenue at Rs 356b (+9% YoY, +3% QoQ) driven by strong domestic deliveries. EBITDA of Rs 77.3b reflected robust volumes but subdued ASPs, while APAT surprised positively at Rs 41.7b despite weaker pricing. We estimate a gradual improvement in consolidated profitability over FY26–27E, led by higher steel realisations, sustained domestic volume growth, and easing cost pressures in Europe. Operating leverage from capacity ramp-ups and restructuring benefits should support margin recovery and stronger cash generation.

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

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