The upcycle in the Indian steel industry will last until the fiscal year ending March 31, 2023, supported by strong domestic demand and as well as on the supply side by reforms undertaken by China relating to reducing emission, global financial services corporation Morgan Stanley has said in a report issued on Thursday, March 25.
“The current cycle has an element of similarity to both the prior cycles after the global financial crisis in 2009 and supply-side reforms during 2016-18. We see a sharp rebound in steel demand globally (rest of the world, excluding China) in 2021 supported by a V-shaped economic recovery,” the investment banker said in its report.
The report said that higher international steel prices and tightness of supply in the domestic market should support a “super cycle profitability”. This will lead to accelerated deleveraging and a potential start of the next capital expenditure cycle for the Indian steel industry.
With greater visibility on a long-term cycle, Morgan Stanley forecast said that there would be a shift away from balance sheet to earnings growth of Indian steel companies.
Morgan Stanley has increased its 2021-22 fiscal year earnings estimates for Indian steel companies by 1-12 percent, resulting in EBITDA estimates of 4-35 percent. “We see scope for upside risks to our estimates and believe the earnings upgrade cycle is likely to continue,” the report said.
