The brokerage said rising ore prices should weaken cost support hopes for steel
Tata Steel and JSW Steel fell more than 2 percent intraday on June 25 after global brokerage house CLSA turned bearish on the sector, citing earnings risk and steep valuations.
The brokerage has sell call on Tata Steel with a target price at Rs 395 per share and on JSW Steel with a price target at Rs 225, implying 19 percent and 13 percent potential downside from current levels, respectively.
"Both are trading at steep EV/EBITDA and price-to-book value premium to global peers," it said.
JSW Steel was quoting at Rs 255.45, down Rs 2.40, or 0.93 percent after hitting a 52-week low of Rs 252.30 and Tata Steel was down 1.87 percent at Rs 477.05 on the BSE at 0918 hours IST.
"Steel prices are under pressure and there is a risk to earnings and steep valuations," said CLSA that expects ore prices to peak in Q3CY19 and ease materially over Q4CY19 & Q1CY20.
The brokerage said rising ore prices should weaken cost support hopes for steel. "We see downside risk to our below-consensus estimates," it added.
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