Metal stocks continue to climb up amidst a volatile market; top stock picks leading brokerage firms

For a second-day straight, metal stocks on the bourses were seen surging higher despite the volatility being faced by the benchmark indices.

For a second-day straight, metal stocks on the bourses were seen surging higher despite the volatility being faced by the benchmark indices. The Nifty Metal index jumped 1.3% with all but three constituents trading in the green, while the S&P BSE Metal index climbed 1%. Metal stocks have been beating the volatility as India’s fourth nation-wide lockdown to control the coronavirus pandemic inches closer to an end and the relaxation in lockdown allowed industrial activity. Exports are also expected to jump as the Chinese economy hints at a speedy recovery. 

Hindalco led the rally on Nifty with a 4% jump in share price, followed by SAIL and JSW Steel, gaining 3.7% and 2.2% respectively. “The outlook for the domestic ferrous sector has improved. However, logistics efficiencies, increasing use of captive iron ore, and other efficiency measures are expected to keep the conversion cost low,” said Edelweiss Securities in a recent note. The brokerage and research firm has a target price of Rs 135 on Jindal Steel and Power. “We reiterate JSPL holds good value as cost efficiencies and low capex intensity are expected to aid cash conservation in the ongoing difficult times. We will keep close tabs on the developments regarding the Australian subsidiary. The stock is trading at an undemanding 4.6x FY22E EBITDA,” Edelweiss said.

The key concern, according to ICICI Securities, for Jindal Steel and Power remains the international debt. “JSPL faces Rs61bn (Rs 6,100 crore) of maturity in FY21 with Rs33bn (Rs 3,300 crore) in overseas operations and Rs28bn in domestic operations,” it said. The brokerage firm has an unchanged target price of Rs 213 for the share. Kotak Securities too is bullish on the stock but thinks the guidance given by the firm is a bit too aggressive. “JSP has guided 7-7.5 mn tons of domestic steel volumes implying a 20% YoY growth at midpoint. We estimate 5.5 mn tons (-8% yoy) of steel volumes in FY2021 factoring the demand destruction led by Covid-19,” it said. Kotak Securities has pinned a fair value of Rs 200 on the stock. The brokerage firm also has a ‘buy’ call on Tata Steel with a fair value of Rs 430 per share. 

JSW Steel, although having gained close to 7% on Tuesday and another 2% on Wednesday is not being eyed by brokerage firms. Kotak Securities has a target price of Rs 180 on the scrip which is marginally up from the current market price. Edelweiss Securities has a hold rating on the stock with a target price that is lower than the current market price. “While JSTL is better off vis-à-vis peers in terms of fixed-cost structure, we do not expect its net debt to reduce given capex commitments,” Edelweiss said. On the other hand Kotak Securities thinks the overseas subsidiaries of the company are dragging the share down. “Overseas division (US, Europe) continues to bleed with EBITDA loss of Rs3 bn. For FY2020, steel volumes declined by 4% yoy, EBITDA of Rs7,820/ton (-33% yoy) while overseas divisions reported EBITDA loss of Rs13 bn,” it said.