If Indian steel players can consolidate and increase volumes (absolute), domestic brokerage and research firm ICICI Securities is of the opinion that there will be value creation hereon, irrespective of the volatilities. It sees Indian steel players being able to do that over the next couple of years in an inflationary environment.
The brokerage has maintained Buy ratings on metal stocks Hindalco with target price of ₹700, APL Apollo (target price of ₹1,100), Jindal Stainless (TP: ₹252), Jindal Steel and Power (JSPL) (TP: ₹618), and Tata Steel with target price of ₹1,700.
Whereas, it has Hold recommendations on JSW Steel (TP: ₹652), NMDC (TP: ₹150), National Aluminium Company (Nalco) (TP: ₹119), Steel Authority of India (SAIL) with target price of ₹99. The brokerage house has raised target prices of Tata Steel, Hindalco, JSPL and JSW Steel shares.
“With strong undercurrents of inflation, we expect supply side imbalances to continue in various commodities (steel, aluminium, zinc, nickel, etc.). The (double) impact of cost curve increase and export restrictions out of Russia is being felt in i) aluminium, ii) zinc and iii) steel. Impact of possible sanctions is expected in coal and nickel, and possible impact of export volumes out of Ukraine is felt in ferro alloys (FeMn, Fe SiMn), iron ore and steel," the brokerage noted.
Further, secondary players may be faced with crunched up domestic supply of thermal coal. Lead lag of steel prices vs RM prices may allow interim expansion of EBITDA/te (as has been seen in past cycles), ICICI Securities highlighted.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
