Arcelor entry pushes steel stocks up 20-30%

CHENNAI: ArcelorMittal's small stake in Uttam Galva is turning out to be a big deal for steel stocks as they have risen 20-30% in the past week. Analysts said valuations are being re-rated upwards leading to the price appreciation in stocks.
Shares of steel makers such as Facor Steels (12.27%), JSW Steel (8.48%), SAIL (6.5%), Tata Steel (10.17%) and Visa Steel (12.73%) have benefited in the last one week as investors "have realised the true value" of steel makers, said market experts.ArcelorMittal's September 4 deal with Uttam Galva - a small re-rolling firm - signifies that the Miglani family-owned firm was valued at around $650 enterprise value per tonne (Ev/tonne) as against Tata Steel's at $600, analysts reckoned. Ev/tonne is a valuation measure to rate capital-intensive businesses.
"Many small steel companies like Electrosteel Casting and Monnet Ispat have cornered large iron ore and coal resources and are pursuing large steel projects. This deal gives some visibility as to the possible valuation trend," Rakesh Arora of Macquarie Research said in a note.
Investors are betting on many medium/small steel makers as potential acquisition targets and are rushing to buy shares. Stocks of Aditya Ispat (12.68%), GMR Ferro Alloy (8.48%), Hisar Metal (13.92%), India Steel (10.48%), Monnet Ind. (23.96%) and Mukand (30.85%) have been cornered in the last few days as trading volumes have spiked.
Companies engaged in steel rolling such as Bellary Steel (20.62%), ISMT (13.48%) and steel (sponge iron) companies like Ankit Metal (9.14%), Bihar Sponge (40.13%), Lloyds Metals (27.65%), Tata Sponge Iron (11.54%) and Vikash Metal (24.63%) have found both speculators and long-term investors accumulating them, leading to rise in prices. A recovery in global steel outlook is also partly responsible for the uptick in stocks.