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Lloyds Steels share price forecast: Return of steel rally?

By Ryan Hogg

Edited by Jekaterina Drozdovica

16:05, 24 March 2022

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Lloyds Steels share price forecast: Return of steel rally? – Photo: Shutterstock

Lloyds Steels Industries share price is still reeling from huge growth to round out 2021, nearly half of which has been wiped out in the space of two months. 

The equipment and machinery manufacturer that was established in Mumbai in 1974 hopes it can reverse losses and reap the benefits of a supply crunch in steel.

But slowing growth in the global economy, and the potential of excess supply, could conspire to limit the wider profitability of the firm's operations, affecting the Lloyds Steels share price prediction.

Lloyds Steels share analysis

Lloyds Steels (LCIL) stock has arrested a tumble in its share price which took out historic gains almost as quickly as they were made.

The stock enjoyed mammoth gains in the final quarter of 2021, realising a more than seven-fold increase from 1 October 2022 to peak at 27.45 INR on 11 January 2022. That rise largely came on the back of increased profit, where 234.6% growth in the same quarter of 2020 forced investors to reassess their valuation of the company’s stock and drove heavy speculative growth.

Lloyds Steels stock, 2017 - 2022

The stock eventually gave up some of its gains as investors eased off on the bull-run, but it continues to trade at levels never seen in the Lloyds Steels share price history, with evidence of a much higher ceiling.

In the latest Lloyds Steels stock news, the company announced the acquisition of Murbad Industrial Area on 2 February 2022, which along with an earnings update induced some resurgence in its share price before its latest tumble as confidence in the global economy’s recovery slumped.

Shares in Lloyds Steels last closed on 21 March 2022 at 15.15 INR, perched in the middle of its 52-week range, having fallen 4.72% over the day. Shares are down 22.76% year-to-date as gains from the tail end of 2021 have been largely surrendered.

Technical analysis on the stock showed bullishness largely remained for the stock at the time of writing (24 March), indicating the potential for another rally on the horizon.

Oscillators were neutral on average, including a relative strength index (RSI) of 53.2, though the stock’s Awesome oscillator and MACD Level (12, 26) were both in ‘buy’ at 0.0 and -0.4 respectively. Stochastic % and Momentum (10) were both on ‘sell’. 

Moving averages are almost entirely in buy, indicating bullishness in recent history and beyond based on the stocks average price movements.

Steel prices not catching up with other commodities yet

Commodity prices are broadly going gangbusters after a double-whammy of cyclical squeezes and the Russian invasion of Ukraine, which have together choked supply and driven massive uncertainty around the status of future resources. 

Lloyds Steels provides for the steel market directly through melting and rolling, while also indirectly serving the industry through its hydrocarbon, nuclear and civil engineering services. The movement of the commodity is accordingly a good barometer for the health of the company. 

Huge price jumps are occurring across commodity groups, including energy, metals and agriculture. In energy, coal has shot up 250% in the last year, with UK gas up 393%. In agriculture, both wheat and coffee prices have risen more than 77% in the last 12 months.

In metals, Russian-linked commodities are in their own bull-run. Lithium, key in the manufacture of electric vehicles, has experienced nearly three-fold growth, while copper is up a less-pronounced 15.2%.

Despite Russia being in the top four steel exporters in the world in 2020, shipping 29.5m metric tonnes, the effects of the invasion on the commodity have been less pronounced.

Steel is up just 5.59% year-on-year, and 2.2% in the last month, as of 22 March 2022.. Generally, metals buyers have been spared by separate economic headwinds.

World leading steel exporters in 2020, by country

China’s ongoing struggles with another wave of the pandemic appears to be mostly offsetting any Russian-linked pressures so far. The country went into another lockdown this week as Covid-19 cases surged, dampening expectations for domestic demand.

On top of that, the country is in the midst of a real-estate crisis that is unlikely to resolve itself this year. Both have conspired to leave China in its most economically precarious position in years.

It means the country has an unexpected amount of steel now available for exporting, offsetting any uncertainty over Russian figures.

Domestic confidence strong but global slowdown looms

These trends could all spell some trouble for Indian steel, which might have hoped to be in a sellers’ market.

“Although we are becoming more concerned with regard to demand, steel stocks remain attractive, based on valuation and underlying cash generation.”
by Deutsche Bank

Yet, some of China’s lockdowns have also affected industry, including in Shenzhen, cutting the amount of commodities produced and exported by the country, a move likely to drive up prices.

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“Firstly, the ongoing Covid-19 outbreak has led to lockdown in major cities, particularly Shenzhen and the wider Guangdong Province… Secondly, global demand may weaken amid rate hikes across major central banks,” DBS said in a note.

Some analysts appear bullish on Indian steel prospects this year, believing India to win out as a reliable exporter and China continue to struggle.

Which factor comes out on top could determine whether India-based Lloyd Steel can capitalise on demand-led price increases, rather than excess supply-induced price cuts.

“The disruption in global steel supply is expected to benefit the Indian steel industry,” CARE Ratings said in a research note.

“Russia being the major exporter of steel to the European Union (EU), the restrictions on the export from Russia to the EU will create opportunity for India. In addition, the demand for the Indian steel industry will be supported by increased government spending on infrastructure and a gradual economic recovery,” the note stated.

CARE Ratings also pointed out production across crude and finished steel had risen more than 18% and 21% respectively in the 12 months to January 2022, with consumption up 15%.

Signs for businesses also look strong. According to Associated Builders and Contractors, a trade body, contractor confidence in the US remained strong last month as price pressures began to mount. 

Likewise in India, business confidence remained strong toward the tail-end of 2021. According to the India Brand Equity Foundation, demand for steel was expected to increase 17% to 110m tonnes.

Nevertheless, the current inflationary crisis in the commodity-demanding Western world threatens to cut appetite for investment. Growth outlooks are being cut for major economies. In January, the IMF reduced its 2022 global GDP growth forecast by 0.5 percentage points to 4.4%, with expectations it will be lower still following Russia’s Ukraine invasion.

Based on history, the effects of a growth crunch on steel imports could be dire. The EU, a major importing market for Indian steel, saw steel imports plummet during economic crises, nearly halving between 2008 and 2009.

However, analysts remain upbeat on steel’s direction of travel.

“Although we believe that potential demand destruction would give rise to uncertainty, we expect mills to gain the upper hand on pricing power in the near term,” Deutsche Bank said in a note.

“Although we are becoming more concerned with regard to demand, steel stocks remain attractive, based on valuation and underlying cash generation.”

Inventory change drives profits even as revenues fall

Lloyds Steels Ltd earnings suggest a company in a cost-saving transition, the result of which encouraged investors last year but may only be of minor influence to the group’s share price against more speculative earnings.

The company’s earnings for the third quarter of 2022 financial year showed similarly large growth in profits to the quarter prior, rising 329.47% against the quarter to December 2020, at 375.1 Lakhs.

But revenues were half the figure in Q3 2021 at 2,079.23 Lakhs, with expenses declining further to 1704.13 Lakhs to drive profit growth. The latter was driven mainly by 996 Lakh profit in inventory changes, against a cost of 2,654.72 Lakhs in the same period for 2021.

Earnings per share (EPS) of 0.04 Lakhs trumped 0.01 Lakhs in EPS for Q3 2021, contributing to EPS of 0.05 Lakhs in the first nine months of FY 2022.

Lloyds Steels share price forecast

Lloyds Steels stock price outlook is highly volatile, reflective of a temperamental period for the stock.

Munafasutra’s price target for the stock ranged from a low of 2.49 INR to a high of 13.38 INR, both below the stock’s most recent closing price.

Algorithm-based forecasting service Wallet Investor indicated optimism that the stock will slowly surpass recent highs in its Lloyd Steels share price target for 2025-2030.

The site projected a price target of 24.78 INR by December 2022, rising to 36.13 INR by December 2023 and 58.74 INR by the end of 2025. Although Wallet Investor didn’t provide numbers for the Lloyd Steels share price future in 2030, the forecasting site projected it to be worth 72.58 INR in March 2027.

Note that price predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.

FAQs

Is Lloyds Steels share a good stock to buy?

Lloyds Steels’ success is dependent on Indian steel exports, which are influenced by patterns in other exporting countries like China and Russia and wider economic growth. Accordingly, Lloyds Steels stock is perched against a number of conflicting factors, with falling revenues last year a potential warning sign against the stock.

Will Lloyds Steels go up or down?

According to Manufasutra, Lloyds Steels will contract below its current price. Algorithm-based Wallet Investor projected Lloyds Steels shares to reach new highs in 2023 and maintain growth thereafter.

Note that price predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.

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