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Metal stocks have outrun the market in recent trading sessions amid reviving demand in China and Europe. The BSE Metal index is up 60.8 per cent from the March 23 low of 5,336.05, while the Sensex is up 49.6 per cent from its low of 25,638.9. ET spoke to three brokerages on their top picks that are likely to outperform
HINDALCO INDUSTRIES
CMP: Rs 175.75
Motilal Oswal Target Price: Rs 198
Hindalco is Motilal Oswal’s top pick in the non-ferrous space because of resilience in Novelis’ beverage can business where volumes have not been impacted much by Covid-19 and global recovery in auto demand which is a high margin business for Novelis, said institutional research analyst Amit Murarka. Motilal Oswal is positive on Hindalco also on improving India business profi tability and deleveraging from peak debt post-acquisition of Aleris. Murarka said there is relatively higher stability in Hindalco’s earnings and valuation based on FY22 estimates is still at a 20% discount to the past 10-year average.
JSW STEEL
CMP: Rs 256.70
IIFL Target Price: Rs 295
JSW Steel’s FY20 annual report highlights its focus on normalising operations posts the Covid-19 lockdowns along with a strong emphasis on fi xed-cost reduction. “Despite lowering capex for FY21 to Rs 90 billion vs. Rs 163 billion planned earlier, challenging markets point to leverage remaining high. The Bhushan Power & Steel acquisition is contingent on the Supreme Court verdict on all filed petitions.”
TATA STEEL
CMP: Rs 414.75
IIFL Target Price: Rs 530
Amid heightened uncertainties and high leverage, Tata Steel has scaled-down its capacity target to 25 million tonnes by FY25, said IIFL. It maintains focus on enhancing cost leadership and market share in chosen segments− improvements in operating parameters, gains from the Shikhar program, scale-up of acquisitions and new-product development are steps in this direction, said IIFL. Leverage remains high and a reduction will depend on the steel cycle; but the elongated debt maturity profi le lends comfort, the brokerage said.
MISHRA DHATU NIGAM
CMP: Rs 212.45
ICICI Direct Target Price: Rs 260
ICICIdirect’s AVP-Research Dewang Sanghavi said that in the current scenario it prefers players which have created a niche for itself and have the competence to develop and manufacture customised products to suit the specific requirements of customers. State-owned Mishra Dhatu Nigam is one such manufacturer of special steel, superalloys and titanium alloys for the space and defence sectors, he said. Recently the Ministry of Defence has announced an import embargo list of 101 items to be progressively implemented between 2020 and 2024 to boost indigenisation of defence production. Midhani is likely to be a key benefi ciary of the recent steps taken by the government, said Sanghavi, who has a buy rating on the stock with a target price of Rs 260
HINDALCO INDUSTRIES
CMP: Rs 175.75
Motilal Oswal Target Price: Rs 198
Hindalco is Motilal Oswal’s top pick in the non-ferrous space because of resilience in Novelis’ beverage can business where volumes have not been impacted much by Covid-19 and global recovery in auto demand which is a high margin business for Novelis, said institutional research analyst Amit Murarka. Motilal Oswal is positive on Hindalco also on improving India business profi tability and deleveraging from peak debt post-acquisition of Aleris. Murarka said there is relatively higher stability in Hindalco’s earnings and valuation based on FY22 estimates is still at a 20% discount to the past 10-year average.
JSW STEEL
CMP: Rs 256.70
IIFL Target Price: Rs 295
JSW Steel’s FY20 annual report highlights its focus on normalising operations posts the Covid-19 lockdowns along with a strong emphasis on fi xed-cost reduction. “Despite lowering capex for FY21 to Rs 90 billion vs. Rs 163 billion planned earlier, challenging markets point to leverage remaining high. The Bhushan Power & Steel acquisition is contingent on the Supreme Court verdict on all filed petitions.”
TATA STEEL
CMP: Rs 414.75
IIFL Target Price: Rs 530
Amid heightened uncertainties and high leverage, Tata Steel has scaled-down its capacity target to 25 million tonnes by FY25, said IIFL. It maintains focus on enhancing cost leadership and market share in chosen segments− improvements in operating parameters, gains from the Shikhar program, scale-up of acquisitions and new-product development are steps in this direction, said IIFL. Leverage remains high and a reduction will depend on the steel cycle; but the elongated debt maturity profi le lends comfort, the brokerage said.
MISHRA DHATU NIGAM
CMP: Rs 212.45
ICICI Direct Target Price: Rs 260
ICICIdirect’s AVP-Research Dewang Sanghavi said that in the current scenario it prefers players which have created a niche for itself and have the competence to develop and manufacture customised products to suit the specific requirements of customers. State-owned Mishra Dhatu Nigam is one such manufacturer of special steel, superalloys and titanium alloys for the space and defence sectors, he said. Recently the Ministry of Defence has announced an import embargo list of 101 items to be progressively implemented between 2020 and 2024 to boost indigenisation of defence production. Midhani is likely to be a key benefi ciary of the recent steps taken by the government, said Sanghavi, who has a buy rating on the stock with a target price of Rs 260