Metals have always been an important part of the development of civilization. So much so that there is something called Iron Age. Metals define the development we go through over the years. Steel as a metal has successfully attained the top spot in the important metals list. We are currently the 2nd largest steel-producing country in the world. So we know Steel is important, and so is the industry. Keeping in mind such importance, this article will talk about the top two companies in the steel sector, compare them, and hence conclude which one of the two namely, Tata Steel and JSW Steel is better.
Industry Overview
The production of steel has increased by 75% since 2008, and domestic demand increased by almost 80%. India produced 120 MT of finished steel in the financial year ending 2022. We also exported 13.49 MT of steel and imported 4.67 MT of steel. The annual production of steel is expected to be 300 Million Tons by 2030.
As of September 2022, India attracted an FDI of 17.09 Billion USD in the sector.
Other major investments are –
- Tata Steel and Punjab Government signed an agreement to establish an electric arc furnace steel factory using steel scrap.
- Tata Steel had announced plans to build additional scrap-based facilities. These facilities will have a capacity of at least a billion tonnes by 2025.
- JSW Steel made an investment of Rs. 150 billion in October 2021 to expand manufacturing in Jammu and Kashmir by constructing a steel plant there.
- JSP plans to invest 2.4 Billion USD in order to keep up with the growing demand of the customer, as per an announcement in August 2021. This amount will be invested in over 6 years.
Also Check: Best Steel Stocks in India
Tata Steel vs JSW Steel
The following table will give us a brief into both companies –
| Tata Steel | JSW Steel | |
|---|---|---|
| Founded | 1907 | 1982 |
| Market Capital (Rs Crore) | 137,368 | 174,849 |
| Products | Hot rolled cold rolled Coated coil TubesRebar Wire rods | Hot rolled cold rolled colour coated products Galvanised Galvalume TMT rods Wire rods Special alloy steel Avante steel doors |
| Product Segments | Agriculture Automotive Construction Consumer goods Energy and Power Engineering Material Handling | Automotive General Engineering Machinery Projects and Construction |
Now, that we have the basics of the Steel Industry and some information about the companies, we will look into more parameters to compare both the giants.
Sales
The sales by both companies are vast af huge. However, the sales of Tata Steel are far ahead than that of JSW. In the year ended March 2022, Tata made a sale of Rs. 2,43,959 Crores and for the same year, the sales of JSW were Rs. 1,46,371 Crores.
The following table shows the sales of both manufacturers in the past 4 years.
| Revenue | March 2021 | March 2020 | March 2019 | March 2018 |
|---|---|---|---|---|
| Tata Steel | 156,477 | 148,971 | 157,668 | 132,155 |
| JSW Steel | 79,839 | 73,326 | 84,757 | 70,225 |
- Other Financials
- Revenue Growth
The revenue of Tata Steels, as also seen in the table, grew from Rs. 1.32 Lakh Crores in March 2018 to a whopping Rs. 2.43 Lakh Crores in March 2022, which is a growth of almost 84% within 5 years.
And the revenue for JSW, when compared in a similar way, has gone from just 70,225 Crores to 1.46 lakh Crores in 5 years showcasing a growth of 83%.
So, while the numbers of both companies may seem far away, in terms of growth, the manufacturers are at the same stage, and not much difference is seen here.
It should also be noted though, that as per the quarterly results of the companies, the sales of Tata can be seen declining while on the other hand, the JSW has been showing decent quarterly growth too.
Operating Profit and Net Profit Margins
The operating profits of both companies have seen similar patterns of growth as is also seen in the table below, however, in terms of growth over the years, Tata is ahead of JSW, where the Tatas grew from 12.74% in 2018 to reach almost at par with JSW within 5 years.
Special light should be put on the numbers from March 2020 to March 2022, where both companies can be seen at their respective lowest in the year 2020, and have caught up within a short period, where again Tata has shown better growth from 7% to 22%, which is more than 3 times.
| Operating Margin | March 2022 | March 2021 | March 2020 | March 2019 | March 2018 |
|---|---|---|---|---|---|
| Tata Steel | 22.61 | 14.16 | 7.34 | 14.88 | 12.74 |
| JSW Steel | 23.59 | 20.10 | 11.14 | 17.83 | 16.48 |
- Ratios
- PE
The companies can be earning good and giving returns, but if the stock is expensive, it does lose a bit of its image.
The PE for Tata, standing at 4.7 is low as per the industry average, and considering this, is the perfect opportunity to buy the stock keeping in mind the upcoming plans of the company.
On the other hand, the PE of JSW at 47.4 is very high indicating the stock is expensive at the present and is the golden time to sell if someone is having a holding in company. Since the stock is overvalued at this point, it is expected to fall to make the corrections and adjust to the correct valuation.
Debt to Equity
Debt is not always a negative aspect of business, as long as it is being utilised to its best and is at the pre-determined level.
| Debt/Equity | March 2022 | March 2021 | March 2020 | March 2019 | March 2018 |
| Tata Steel | 0.6 | 1.1 | 1.59 | 1.37 | 1.51 |
| JSW Steel | 1.04 | 1.11 | 1.45 | 1.03 | 1.21 |
Both companies have been working to reduce their debt significantly, and have done so successfully. Reduced debt indicates healthy liquidity and cash flow in both companies.
Shareholding Patterns
The holding of the promoters in any company indicates how confident the promoters are of the company’s future prospects and potential.
Tata’s 34% of the holdings are in the hands of the promoters other than this, 21% of the company is held by Foreign Institutional Investors and 20%.
The promoters of JSW hold 45% of the company, and the FIIs hold 26% here.
Final Thoughts
Coming straight to the doubt you had, which is better among the two? In the past year, both companies have given similar returns and have similar profitability. However, when it comes to dividends, which is one of the most important aspects for an investor, JSW lags behind. Tata Steel has been providing better dividends to its holders.
In terms of production capacity, JSW is expected to perform better in the coming years given the company is planning to put in more funds in the division. Tata Steel will definitely not be much behind though, thanks to the various schemes by the government supporting the Steel Industry overall.
In all, we think Tata Steel has a better future when a comparison is made between the two. This comes not just from the future prospects but also the past records and consistency the companies have been showing.
Also check: Adani Power Vs Tata Power
