Tag: metal stocks

This steelmaker remains a long-term favourite despite burning half of investors’ money in 90 days

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A New Delhi-based manufacturer of stainless steel has burned nearly half of investors’ money in three months, but analysts are counting on a much rewarding bounce back in the stock. New Delhi-based Jindal Stainless is a part of the diversified OP Jindal Group, which has operations in areas such as iron and power generation besides steel.

Many analysts expect a rerating in the stock, betting on bright demand prospects for the sector, especially from pockets such as automobiles and infrastructure, and the company’s capacity expansion initiatives.

“Jindal Stainless is a fundamentally strong company well positioned among stainless steel makers. It is a good stock and very attractive from a long-term investment perspective,” AK Prabhakar, Head of Research at IDBI Capital Markets, told CNBCTV18.com.

“The company has seen consistent growth in the last 10 years,” he pointed out.

Many analysts are upbeat on Jindal Stainless, at a time when the government has imposed a 15 percent export duty to improve domestic steel availability and reign in steel prices. They say a possible reduction in volumes is factored in the stock price.

Meanwhile, the government is considering a proposal to discontinue the duty before the end of the monsoon season, sources told CNBC-TV18.

What does the duty mean for steelmakers?

Major steelmakers have faced margin pressure as a high duty resulted in a loss of their overseas customers. The Finance Minister has assured industry leaders the government will relook on the duty on certain products.

According to ICICI Securities, a removal of export duty, if an when it happens, will boost Jindal Stainless’ business model.

“It would be disappointing to see a partial rollback of the export duty on steel products and not in stainless steel. The imposition of the duty itself was difficult to put in a framework given the larger demand market, i.e. aluminium was exempted, but stainless steel was included. However, JSL is most leveraged to the export market among Indian metal peers, with around 25 percent of the combined Jindal Stainless and Jindal Stainless Hisar volumes being exported, hence is the most impacted by the export duty,” the brokerage said in a research report dated July 12.

The stainless steel maker has guided for maintaining 50 percent of a peak export run-rate despite the duty while trying to push the rest of the volumes in the domestic market. “These measures expose volumes and margins to downside risks,” according to ICICI Securities.

ICICI Securities has a ‘buy’ rating on Jindal Stainless with a target price of Rs 104 — a level the stock has already hit.

Other analysts see more potential upside in the stock.

Monarch Networth Capital, which also has a ‘buy’ rating on the stock, believes the fair value of the Jindal Stainless stock is Rs 260.

Hemen Kapadia of KRChoksey is of the view that the stock appears to have stabilised on the short-term charts. “Having made a higher top and higher bottom formation, the stock has shown some positive divergence by mechanical indicators with strong support at Rs 95… A close above Rs 110-120 could see the possibility of a further upside,” he told CNBCTV18.com.

He believes the stock is “deeply oversold” from a medium-term perspective.

“Jindal Stainless shares are in the process of stabilising but a confirmation of a medium-term bottom is still not there… We would need some more time to confirm that possibility… One would be more positive then negative but certain levels first need to hold and secondly some of the resistance levels like Rs 110 and Rs 120 need to get taken out while the stock seems to be getting itself in a mood to do that,” Kapadia added.

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Tata Steel, Hindalco Industries, JSW Steel slump on poor earnings visibility

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of Tata Steel, Hindalco Industries, NMDC, Steel Authority of India, Hindustan Copper and Jindal Steel and Power fell 2-3 percent on Monday after a gloomy commentary by Jefferies wrecked the risk-appetite of investors.

Nifty Metal was the biggest loser among sectoral indices on the NSE. At 11:15 am, the sectoral gauge was down 1.7 percent at 4,618.45 points.

Jefferies has cut its earnings per share estimates (EPS) for FY23-24 by 2-34 percent for JSW Steel, Hindalco Industries, and Tata Steel.

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Jefferies said that it’s still early to turn constructive as the price to book valuations remain above historical troughs, earnings visibility is poor, and consensus downgrades will continue. The price-to-book ratio compares a company’s market value to its book value.

Here’s what Jefferies’ rating and target price on metal stocks look like:

Metal stocks also witnessed a sell-off on demand worries in top consumer China. China is also the top producer of metals. Mills in China have idled dozens of blast furnaces as stocks piled up after domestic demand weakened, hit by COVID-19 lockdowns and bad weather.

Meanwhile, Harsha Upadhyaya, CIO, Kotak Mahindra AMC, said that the balance sheets of almost all the metal companies in India have deleveraged by a significant amount.

“To that extent, even lower prices, which are there currently, are not really going to hurt them. Yes, they will make fewer profits, but it’s not doomsday for them. On a bottom-up basis, you can still evaluate commodities, but our thesis is rather than looking at commodity producers at this point, it’s better to look at commodity users who will get a better benefit over the next couple of quarters,” Upadhyaya said.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Party may be over for steelmakers — here’s what it means for investors

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India’s steel giants have lost about one fifth of their market value in just one month, as they scramble to protect their margin against low alloy rates and weak demand though easing raw material costs lend some support. And analysts are seeing more pain ahead for investors.

Stocks of Tata Steel, JSW Steel, Jindal Steel and SAIL have burned 21-39 percent of investors’ money in three months.

Tata Steel’s prive-to-book (P/B) value ratio, for instance, is near levels seen during the global financial crisis — it is a financial ratio that determines the money investors are willing to pay for a slice of a company’s assets.

According to JPMorgan, Tata Steel shares are near the lows of the 2008 global financial crisis in P/B terms, even as its net debt is 50 percent lower and India capacity is up 2.5 times.

The plunge in steel stocks comes amid:

• A downtrend in benchmark alloy rates
• Export duty: In May, the government imposed an export duty on certain iron and finished steel products. 
• Low China demand on account of COVID-19
• Fears of economic slowdown

So why is steel falling?

An overall environment of risk aversion has been the key headwind for steel prices amid nervousness about a global growth slowdown and forceful rate hikes by major central banks to fight rising price pressures, Sugandha Sachdeva of Religare Broking told CNBCTV18.com.

“Besides, supply concerns have eased, as exports from Russia, one of the leading steel producers in the world, have resumed after a transitory halt in March 2022. Prolonged lockdowns in China have also dampened the demand prospects for steel and led to profit booking in the ferrous metal from its March peak,” she said.

Higher steel rates hurt the amount of money earned on every tonne of steel sold by manufacturers. 

Many analysts don’t expect steel rates to revisit their recent highs anytime soon.

“Once the monetary tightening concerns subside and inflation eases, we may see renewed buying interest in steel, but we don’t envisage the prices to surge towards March highs at least in the near term,” added Sachdeva, Vice President-Commodity and Currency Research at Religare Broking. 

Some even expect a significant correction in the rates from the current levels. 

“All metals are in a downward trend and weakness of a further 10-15 percent is possible from current levels,” said Manoj Kumar Jain, Head-Commodity and Currency Research at Prithvi Finmart.

That might spell more trouble for investors with steel-heavy portfolios.

Steelmakers’ expansion plans may be impacted if duties are maintained in the medium term, according to Icra. Almost 95 percent of the country’s finished steel export basket has been hit with 15 percent export duties, the credit rating agency said.

A silver lining is the softer iron ore price, which partly cushions the decline in steel rates. Iron ore is a major input in the making of steel.

Analysts see margin pressure continuing for steelmakers over the next few months.

Here’s how brokerages are viewing major steelmakers:

Tata Steel

JPMorgan has lowered its earnings per share estimates for the Tata group steel giant by 34 percent for the year ending March 2023, and 25 percent for the next year.

Yet, analysts’ targets for Tata Steel imply a 15-66.5 percent return from Thursday’s closing price.

JSW Steel

Analysts’ targets suggest up to 10 percent upside in JSW Steel as of Thursday.

Motilal Oswal expects coking coal rates to cool off in the next 3-6 months, the leading to a better margin for the company in the second half of the year ending March 2023.

SAIL

JSPL

Girish Pai, Head-Research at Nirmal Bang Institutional Equities, is cautious on some of the global commodity stocks.

“Global growth is going to be under pressure probably in the near term… I think that a lot of global cyclicals will be under pressure and the China-related situation around COVID will also put pressure on some of global commodities,” he told CNBC-TV18.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Export duty on steel sends metal stocks into a tailspin but fuels auto shares

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Metal stocks went into a tailspin on Monday, with the sector gauge Nifty Metal falling more than 6 percent in early trade. Coupled with a fall in global metal prices, India’s move to impose a 15 percent export duty on steel dampened steel companies’ growth outlook.

The imposition of export duty on steel has, meanwhile, improved the sentiment towards the automobile sector. Shares of automobile firms also gained due to a cut in excise duty on fuels.

Shares of Steel Authority of India (SAIL), JSW Steel, Tata Steel and Jindal Steel and Power were down 13-15 percent, dragging the Nifty Metal index by over 8 percent.

Meanwhile, the auto sector gauge, the Nifty Auto index, traded well over 2.3 percent at 10.28 am. Only two of 15 stocks traded negative, while Ashok Leyland, Maruti Suzuki, Hero MotoCorp, Mahindra and Mahindra (M&M), TVS Motor, and Tata Motors gained between 1 percent and 6 percent.

Brokerages’ take on steel sector 

Brokerages have revised their target prices and earnings outlook on the steel sector. CLSA has downgraded the Tata Group metal stock to an ‘underperform’ rating from ‘buy’. It reduced its target price to Rs 1,120 from Rs 1,645 apiece, a massive 31 percent downside.

Prabhudas Lilladher downgraded its outlook for the sector to ‘underweight’ “owing to the highly uncertain market outlook and overdependence on global markets” and cut the target price by 20-55 percent for steel companies. A revival in the Chinese markets raises the odds in favour of weakness in the sector, Prabhudas Lilladher said.

Metal prices have cooled off globally. Steel and aluminium prices are down between 12 percent and 26 percent from their March peaks.

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Expert views

Brokerage Jefferies is positive on auto stocks due to recovery in demand and cooling of raw material prices. It prefers stocks such as Tata Motors, Maruti Suzuki, TVS Motor, Ashok Leyland, Eicher Motors and Bajaj Auto from the space.

Market expert Prakash Diwan is also positive about the auto sector, particularly commercial vehicle manufacturers like Ashok Leyland.

“If there is any sector that would bounce back from lows and oversold zone, it would be the automobile. Freight costs hadn’t moved up as much as fuel prices had. This makes things more viable for fleet operators. This would probably be much positive for them and not as much for passenger cars and two-wheelers immediately,” Diwan told CNBC-TV18.

“It seems like Ashok Leyland is finally moving out from a sluggish operating band in terms of its metrics to something where things could lookup or continue to be strong. The firm has the right product mix to benefit, probably before Tata Motors and M&M joined the bandwagon. It will probably be the go-to stock for allocations to commercial vehicles within the auto pack,” he said.

SMIFS Institutional Research’s Amit Hiranandani said that automobile industry is likely to benefit due to the government’s action on excise and steel.

“Both the news items are sentimentally very positive for the auto industry because high steel prices hurt corporate earnings and impacted consumer demand due to back-to-back price increases,” Amit Hiranandani, SMIFS Institutional Research, told CNBC-TV18.com.

—With inputs from CNBC-TV18’s Sonia Shenoy

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

How Tata Steel beat TCS as Tata group’s biggest profit churner

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Tata Group’s third-largest company (by market value) — Tata Steel — surpassed the group’s crown jewel Tata Consultancy Services (TCS) in terms of profitability.

TCS’s profit for the year ended March 2022 came in at Rs 38,327 crore. This was behind Tata Steel’s Rs 40,153.9 crore, as a surge in metal prices favoured the alloy maker.

As we go about explaining how Tata Steel’s annual profit topped that of TCS, one must understand that both companies belong to two different industries. This makes their results incomparable.

This tells the tale of two industries enduring different cycles. One is an IT giant that is struggling against a high attrition rate and thus high employee costs, and the other riding on a surge in rates of commodities such as metals.

TCS, Titan and Tata steel are the group’s largest companies in terms of market capitalisation. Both giants beat the Street’s revenue estimate in the January-March period,  though struggling against margin pressure.

Tata Steel declared a final dividend of Rs 51 per equity share, and TCS that dividend of Rs 22 per share. For shareholders of the steel major, it is the company’s highest dividend ever.

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3 Mins Read

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Vedanta shares lose steam despite margin improvement amid input cost inflation

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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[wealthdesk shortname=”Vedanta” isinid=”INE205A01025″ bseid=”500295″ nseid=”VEDL” sector=”Mining & Minerals” exchange=”nse”]

Vedanta shares gave up initial gains in choppy trade on Friday, a day after the company reported a year-on-year fall of 4.8 percent in net profit despite a 41 percent jump in revenue.

The stock finished the day down by Rs 3.3 or 0.8 percent at Rs 408.4 amid a last-hour sell-off in the market, having risen as much as Rs 419.6 to come within five percent of its 52-week high during the session.

After the market hours on Thursday, the mining major reported a net profit of Rs 7,261 crore for the January-March period, as against Rs 7,629 crore for the corresponding period a year ago.

Its quarterly revenue came in at Rs 39,342 crore, as against Rs 27,874 crore for the year-ago period, according to a regulatory filing.

Vedanta’s earnings before interest, taxes, depreciation and ammortisation (EBITDA) increased 51.1 percent on year to Rs 13,153 crore. The company said its consolidated EBITDA soared to a record Rs 13,768 crore.

Its EBITDA margin improved to 33.43 percent for the three-month period, from 31.23 percent for the year-ago period, mainly due to higher sales volume, supportive commodity prices, and operational efficiencies despite the higher cost of production amidst input commodity inflation.

Vedanta’s management told CNBC-TV18 that it has a revenue potential of $30 billion with an EBITDA of $12-13 billion.

It also said its net debt declined by Rs 6,590 crore and it is on track to become debt-free in three years.

The company said higher production aided its aluminium business and is positive. “We are going to have a better performance in the coming quarters in our aluminium business,” said Vedanta Group CEO Sunil Duggal.

The management also said Vedanta is focused on lowering costs by sourcing captive coal and alumina in the coming years.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

When inflation is breaking markets, these are stocks you could look at

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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When aluminium prices rise, it’s good for Hindalco but not for Maruti or Tata Motors because they have to now pay more for input and make a lesser profit on sale. And, that is why global investment management firm CLSA recommends that its clients invest in commodity-producing stocks in these times of high inflation worldwide.

According to CLSA, metals, coal, and oil & gas names on the Nifty contribute 17 percent to the Nifty’s FY23 earning per share (EPS) as against a much smaller 6 percent market cap-based weight.

For the same reason mentioned above, CLSA says it may be time to sell some of the stocks from auto, banks, and paint, among other sectors. “The sectors worst hit by higher commodity prices are consumption, auto, paint, and cement. Nearly all of these are stocks trading at much higher multiples than the Nifty.”

In comparison, the metals, coal, and oil & gas names on the Nifty contribute a much larger 17 percent to the Nifty’s FY23 EPS as against a much smaller 6 percent market cap-based weight, as per the CLSA report.

However, the brokerage firm pointed out that this does not include Reliance Industries which contributes 12 percent to Nifty’s market cap weight and makes up 10 percent of the earnings of the index. “Taking into account the fact energy makes up 60 percent of FY23 earnings for Reliance but contributes only 27 percent to our SOTP, it would take up the earning contribution of commodity producers to 22 percent of Nifty’s earnings against these stocks commanding only a 9 percent share of the free float market cap based weight,” as per the report.

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow