Why Steel Exchange Share Price is Rising

In spite of the pullback experienced last week ahead of the Budget 2024 announcements, broader indices BSE smallcap and BSE midcap ended the week with strong gains.

Following a long weekend, bulls returned to the Dalal Street on Monday 29 January 2024 and benchmarks BSE Sensex and NSE Nifty gained a percent each.

In this overall green market, smallcap stocks once again stole the show.

And one smallcap from the steel industry - Steel Exchange - was at the top of the list.

In early trade, Steel Exchange India share price rallied over 13% to Rs 16.95.

In the past one month, the stock has rallied over 60%.

Let's find out why this steel stock is making to the "new highs" list.

#1 Loan Refinancing

The primary reason behind the steep rally could be attributed to a private credit firm refinancing Steel Exchange's loan.

In December 2023, Neo Asset Management refinanced a Rs 2.8 billion (bn) loan taken by Steel Exchange India from Edelweiss Alternatives.

Neo has also provided a fresh primary loan of Rs 1 bn to Steel Exchange at 18.75%, bringing down the previous loan cost of over 21%.

In FY23, the company incurred losses due to high interest costs and depreciation expenses.

With the loan being refinanced at better terms, the company could save up on interest expenses going forward.

#2 Growth Prospects

In the past couple of years, the financial performance of Steel Exchange has been significantly affected due to unfavourable industry cycle, reduced demand for steel, among other things.

But now, the steel industry looks ripe for revival.

Investors are also betting on the fact that a reduction in interest rates will spur economic activity, particularly in infrastructure and housing.

If that happens then top steel companies will be able to sell a good quantity of their production.

The company's products are marketed under the brand name 'Simhadri,' which has a strong presence in the South Indian market. It's the leading brand in TMT bars.

What Next?

The company's diversified product portfolio will allow it to adjust to the changing demand from various industries at times.

Last year, there were also talks of a potential takeover by Jindal Steel & Power (JSPL).

JSPL was said to be in talks to pick up a strategic stake in Steel Exchange India.

It has been looking for acquisitions through the inorganic route to raise its installed capacity more than fivefold to 50 million tonnes per annum.

Steel Exchange India is looking to scale up its production capacity to 1 million tonnes.

If the company does secure funding or an equity deal, Steel Exchange could see its utilisation levels improve. It's already moving away from debt-based funding to the equity-based funding.

How Steel Exchange India Share Price has Performed Recently

In early trade today, shares of the company shot up 13% to hit an intraday high of Rs 16.99.

In the past one month, shares of the company have gained 61%. While in the past one year, shares are up 22%.

Steel Exchange India has a 52-week high of Rs 17.25 touched on 21 January 2024 and a 52-week low of Rs 7.9 touched on 9 October 2023.

Here's a table comparing Steel Exchange with its peers.

Comparative Analysis

Company	Steel Exchange	SAL Steels	Tata Metaliks	KIC Metalik
ROE (%)	-21.6	8.9	5.2	11.0
ROCE (%)	11.5	8.1	8.7	13.4
Latest EPS (Rs)	-0.7	0.1	36.1	3.4
TTM PE (x)	-	224.1	29.1	15.7
TTM Price to book (x)	4.7	5.1	2.1	1.1
Dividend yield (%)	1.7	0.0	0.5	0.0
Industry PE	25.5
Industry PB	8.8

Data Source: Ace Equity

About Steel Exchange India

Incorporated in 1999, Steel Exchange India is engaged in manufacturing and sale of steel and related products and generation of power.

The company is a producer of TMT Rebars in the state of Andhra Pradesh. It has an integrated steel plant (ISP) to manufacture steel rebars.

It's one of the few manufacturers of CRS-grade rebars in the country and supplies to the Indian Armed Forces as well as to other National Infrastructure projects.

To know more, check out Steel Exchange financial factsheet and its latest quarterly results.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...