Top 5 steel companies in India by growth

It continues to do so because steel is both a raw material and an intermediary for several industries. This could be why the production and consumption of steel are used as a parameter to gauge a nation’s economic progress.

India is one of the largest producers and consumers of steel. In the financial year 2023, India produced 125.3 metric tonnes (MT) of crude steel and 121.2 MT of finished steel. It consumed 119.1 MT of finished steel and it is expected to touch 230 MT by 2030.

Rapid industrialisation and high infrastructure spending over the years have helped India secure a top position in the world.

The government is also supporting this sector by introducing various initiatives such as the National Steel Policy and Product Linked Incentive (PLI) scheme.

Through these schemes, it aims to increase the production and export of high-quality steel. This bodes well for the top steel companies in India, giving them a chance to improve their revenue and profits.

Today, let’s take a look at the top five steel stocks in India by growth. These companies have registered the highest growth in terms of sales and revenues. We’ve shortlisted these using the Equitymaster India stock screener.

#1 Shyam Metallics & Energy

First on the list is Shyam Metallics and Energy.

The company is a leading integrated metal-producing company primarily focusing on long steel products and ferroalloys.

It’s also present across the steel value chain by selling intermediate and final products.

The company is the sixth largest steel producer in the country, with a total production capacity of 2.07 million tonnes per annum (MTPA).

It is also one of the largest producers of ferroalloys in terms of installed capacity in India, with three manufacturing facilities and a total installed metal capacity of 5.71 MTPA of which iron is 2.70 MTPA.

Apart from this, the company has eight captive power plants with a capacity of 357 MW. This generates 74% of the electricity for its manufacturing plants, giving it a cost advantage.

Shyam Metallics has integrated operations across the steel value chain, starting from sourcing raw materials to processing them and producing the end products such as TMT bars, wire rods, and beams.

Ever since its IPO (initial public offering) in 2021, the company invested ₹32.3 billion (bn) in capex to increase its capacity across all its products.

In the last five years, the contribution of finished steel products to the revenue mix has gone up significantly.

In the financial year 2019, finished steel products contributed 17% to the revenue. By the end of the financial year 2023, this increased to 48%. This is primarily due to a diversified product portfolio and the growing demand for steel products.

To meet this growing demand, the company plans to acquire distressed steel plants and integrate them with its operations. It also plans to increase its total manufacturing capacity to 11.6 MTPA by 2025.

Moreover, to enhance operational performance and improve cost efficiency, Shyam Metallics & Energy is focussing on forward and backward integration.

Apart from this, it is focussing on improving profitability by exiting waste by-products and introducing high-margin products to its portfolio.

Coming to its financials, in the last five years, the revenue has grown at a compound annual growth rate (CAGR) of 21% driven by higher volumes. The net profit also grew at a CAGR of 5.9%.

Due to the levy of export duty and increase in raw material prices, the profit has been slightly affected in the financial year 2023. However, with the company’s cost-cutting initiatives and captive power plant, the profit margin is expected to be maintained.

Shyam Metallics & Energy’s return on equity (RoE) and return on capital employed (RoCE) averaged 20.8% and 25.5%, respectively, in the last five years.

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Going forward, the company’s expansion plans, and the government’s infrastructure push are expected to drive revenue and profit growth.

#2 Sarda Energy & Minerals

Second on the list is Sarda Energy & Minerals, a part of the Sarda Group.

Incorporated in 1973, the company is engaged in manufacturing steel, ferroalloys, and power.

It has a diversified product portfolio consisting of wire rods, ferroalloys, pellets, sponge iron, and billets.

The company has the capacity to manufacture 180,000 metric tonnes of wire rods, 800,000 metric tonnes of pellets, 360,000 metric tonnes of sponge iron, 300,000 metric tonnes of billets, 30,000 metric tonnes of HB wires, and 111 mega volt-amps (MVA) of ferroalloys.

Additionally, it also has a captive hydro and thermal plant with a combined capacity of 143 MW.

Sarda Energy & Minerals is backwards integrated with most of its raw materials. It has a captive iron ore mine and captive power plants. Recently, it has also won two coal mines which are adequate for the entire captive consumption of the company.

The company has a solid ongoing capex plan which will increase its capacities across various products.

It is setting up a hydropower plant and thermal power plant in Chhattisgarh to meet its captive power requirements and also sell it.

Coming to its financials, the company’s revenue has grown at a CAGR of 12.5% in the last five years on account of volume growth. The net profit also grew at a CAGR of 23.9% on account of captive raw material sources.

Despite heavy capex, the company has maintained its debt to equity at 0.4x. Its RoE and RoCE have averaged 16.3% and 17.6%, respectively, in the last five years.

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Going forward, high demand for steel and power will drive the company’s growth in the medium term.

#3 Godawari Power and Ispat

Next on the list is Godawari Power and Ispat. Part of the Hira Group of Industries in Raipur, the company was formerly known as Ispat Godawari Ltd (IGL).

Incorporated in 1999, Godawari Power and Ispat set up an integrated steel plant with captive power generation.

The company has a unique presence across the steel value chain. It manufactures all kinds of intermediate steel products, such as sponge iron, ferroalloys, HB wires, and finished long steel products, including billets, wire rods, and mild steel wires.

It is also involved in the power business and generates electricity for captive uses.

Godawari Power and Ispat plans to invest ₹35 bn in capex over the next three years to increase its production capacity across all its products.

The company has also invested in setting up a solar power plant of 250 MW to reduce its carbon footprint. Moreover, it is investing around ₹3.9 bn in modernising and maintaining its steel and power plants across the country.

Despite investing heavily in capex, the company’s debt-to-equity ratio is 0.08x, which shows that the company has enough cash flows to fund its growth plans.

In the last five years, the revenue has grown at a CAGR of 12%, driven by healthy growth in volumes and realisation backed by high demand. The net profit also grew at a CAGR of 24.8%, driven by low costs due to captive iron ore mines.

Its RoE and RoCE averaged 25.9% and 32.4%, respectively, in the last five years.

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Given its growth plans and the growing demand for steel, the company is poised for growth in the medium term.

#4 Jindal Steel & Power

Fourth on the list is Jindal Steel & Power.

It is one of India’s leading steel producers with a significant presence in mining and power generation.

The company has its operations in India and in other countries through its subsidiaries. Some of the countries the company has its operations are Indonesia, Australia, Tanzania, Zambia, South Africa, Botswana, and Mozambique.

It is also a preferred supplier of speciality rail products for the Indian railways and various metro projects in the country.

The company manufactures a wide product portfolio, including plates, coils, wire rods, TMT bars, and structural steel products such as beams, columns, and angles.

In terms of margin expansion, the company is constructing a 200 km long slurry pipeline and a 12 MTPA pellet plant in Angul. This reduces logistics costs and generates additional sales through the sale of pellets.

Jindal Steel and Power is also expanding its finished steel capacity by constructing a state-of-the-art 5.5 MTPA hot strip mill which will increase the flat steel-making capacity from 2.2 MTPA to 7.7 MTPA.

The company expects to spend ₹240 bn in capex in the next three to four years to double its capacities.

This augurs well for the company as the demand for steel is on the rise as the capex investment across various industries is increasing. The government is also spending heavily on infrastructure.

In the last five years, the company’s revenue has grown at a CAGR of 5% on account of growth in volumes and price realisations. It also reported a net profit of ₹31 bn, as against a loss of ₹24 bn five years ago.

The company is also focussing on deleveraging its balance sheet and reducing its debt to equity to 0.2x as against 0.9x in the financial year 2019.

Its RoE and RoCE averaged 16.3% and 20.2%, respectively, in the last three years.

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Going forward, the company’s expansion plans are expected to drive its revenue and profit growth.

#5 Ratnamani Metals & Tubes

Last on the list is Ratnamani Metals and Tubes.

Incorporated in 1983 and headquartered in Ahmedabad, the company is engaged in manufacturing high-quality steel pipes and tubes.

It is also the largest producer of stainless steel seamless and welded pipes & tubes in India. The company is also one of the major manufacturers of carbon steel welded pipes in India.

Ratnamani Metals and Tubes has a diversified product portfolio of nickel alloy or stainless steel seamless tubes & pipes, stainless steel welded tubes & pipes, titanium welded tubes, carbon steel welded pipes, stainless steel/carbon steel pipes with coating and induction bends.

Its products find use in multiple industries, including dairy, oil and gas, petrochemicals, chemicals and fertilisers, thermal, solar, aerospace, defence, automobiles, and desalination.

In the financial year 2023, it spent ₹1.4 bn on capex to add additional capacities at its existing plants. In the current financial year, it plans to invest ₹3 bn to build new manufacturing plants and additional capacities in existing plants.

It also plans to expand its product offerings by introducing new products in existing markets.

Apart from this, the company is planning to enter new geographies to expand its customer base.

In the financial year 2023, it undertook an order worth ₹8 bn, which stands as a testimony to the company’s capabilities to handle large value orders.

It has also commissioned a solar plant of 15 MW to reduce its carbon footprint and meet its energy needs.

Coming to its financial performance, the revenue has grown at a CAGR of 10% on account of expansion and new product development. The net profit also grew by a CAGR of 15.2%, and its net margin improved from 9.2% in the financial year 2019 to 11.4% in the financial year 2023.

As a result, its RoE and RoCE averaged 16.5% and 22.5%, respectively, in the last five years.

The company is debt free. It also pays consistent dividends to its shareholders, and its average dividend payout is 17.6%.

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Going forward, increasing capacities, new product development, and expansion into new markets will drive the company’s growth.

Why should you include steel companies in your portfolio?

The Indian steel industry is the second-largest producer in the world and is expected to grow at a CAGR of 7% in the next five years.

Expanding population, urbanisation, greater infrastructure spending, and high demand for automobiles are driving the growth.

To add to this, the government has introduced various initiatives to boost the production and export of steel.

One such scheme is the PLI scheme, where steel companies have committed an investment of ₹295 bn to add a capacity of 24.78 MTPA by 2026.

Now the government is planning to announce the second leg of the PLI scheme (PLI 2.0) with a focus on import substitution and taking care of the requirements of the Indian Railways.

This shows that the Indian steel industry is poised for growth.

However, one cannot ignore the red flags. Steel companies are susceptible to volatility in raw material prices and availability, especially coking coal and iron ore.

Moreover, the volatility in steel prices also affects the revenue and profitability.

Hence, before considering these companies for investment, you must do your due diligence. Check the fundamentals of the company and its future prospects.

Happy investing!

Disclaimer:This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com