>India Steel Sector (UBS)

Infrastructure spend and the Indian steel industry

■ Infrastructure spend to be an important driver for steel consumption
UBS estimates infrastructure spending as per the eleventh five-year plan will be US$275bn, compared to the plan’s target of US$500bn. Infrastructure accounts for around 59% of the total domestic steel consumption and we expect steel consumption for infrastructure in 2007-2012 to potentially increase to around 48mt compared to an estimated 33mt used between 2002-2007, during the tenth fiveyear plan period.

■ Top companies and their positions
Tata Steel has the highest proportion of longs in its basket with around 45% of sales; SAIL comes in second with 22% of volumes being flat. Tata also has a 1- 1.25mt sales volume of auto-grade flat steel, which improves its product profile and eventually EBITDA/tn in the domestic business, in our view. JSW has around 8% proportion of sales volumes in long products, and intends to ramp up its HSM over 2009-11.

■ Valuation: recently upgraded Tata Steel to Buy, and JSW to Neutral
We prefer Tata Steel and SAIL and rate them a Buy. We rate JSW Steel Neutral. We used the DCF methodology to arrive at our price targets for Tata Steel (Rs275), SAIL (Rs125), and JSW (Rs225).

To see full report: INDIA STEEL SECTOR