From Hindalco, Tata Steel to JSPL: Which metal stocks to buy, sell and hold?
Q3 FY23 is likely to witness the juxtaposition of lower realisation and coking coal cost benefits, though subdued volume growth may spoil the fairy tale, said domestic brokerage and research firm ICICI Securities in a note on metal companies.
“Key points: Ferrous EBITDA is likely to benefit from lower coking coal cost despite realisation declining by ₹2,000-3,000/te; 2) volume growth may stay subdued with benefits of export duty roll-back likely to be realised only in Q4FY23; 3) high thermal coal cost and lower LME prices may constrain the profitability of non-ferrous players,” the note stated.
Going ahead, the brokerage expects profitability to improve for ferrous players owing to the recent price hikes taken and higher shipments as export volume revives while non-ferrous players are likely to benefit from lower thermal coal cost.
That said, it awaits the management’s commentary and guidance on spreads/volume. Its top stock picks in the metals space include: JSPL (TP: ₹750; BUY), Jindal Stainless (TP: ₹270; BUY) and Shyam Metalics (TP: ₹425; BUY).
Meanwhile it is also bullish on APL Apollo (BUY) Hindalco Industries (BUY). Its other stances: NMDC (ADD) Tata Steel (HOLD) National Aluminium Company or NALCO (HOLD) Steel Authority of India or SAIL (REDUCE) JSW Steel (SELL).
3 stocks to watch out: “Despite a rather staid quarter, we would focus on three stocks that might surprise: 1) Jindal Stainless- EBITDA is expected to spring back to ₹18,000/te with improvement in shipments; 2) Hindalco- expect Novelis’ EBITDA at US$400/te – lower end of the guidance; however, management commentary is likely to be the key; and 3) Tata Steel- expect TSE’s EBITDA to swing back to loss of US$100/te (Q2FY23: US$125/te profit) owing to the sharp decline in realisation. We believe lower contract prices in Q4FY23 would further exacerbate the situation,” ICICI Securities added.
“The street is gung-ho over the possible stimulus measures in China and we have seen a flurry of (concerted) price hikes globally, lifting up the sentiments. However, the overall impact on companies with global operations is likely to be relatively muted. That said, we would keep a close watch on domestic demand and management commentary.”
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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