JM Financial’s Top Metal Stock Picks
JM Financial is bullish on the metals sector, particularly Indian steel companies, anticipating margin expansion in the current quarter. This positive outlook is fueled by a 12% safeguard duty on flat products and an expected $10-15 per tonne drop in coking coal costs for steelmakers.
The brokerage highlights that Indian steel companies currently enjoy a relatively better spot margin compared to their non-ferrous counterparts, thanks to the recently imposed import duties. There are even talks of potentially increasing the safeguard duty to 24%, which would further bolster domestic producers.
JM Financial’s Top 3 Picks:
- Jindal Steel and Power (JSPL) (Steel)
- Tata Steel (Steel)
- Hindalco Industries (Non-ferrous)
JM Financial has issued a ‘Buy’ rating for all three stocks, with the following target prices:
- Tata Steel: ₹180
- Hindalco Industries: ₹800
- JSPL: ₹1,020
Why the Optimism for Steel?
Domestic HRC (Hot Rolled Coil) prices saw an increase of ₹3,000/tonne in Q1, reaching an average of ₹51,800/tonne, while longs prices rose by ₹1,000/tonne to ₹43,800/tonne. This, combined with lower coking coal costs, is expected to boost EBITDA per tonne by around ₹2,000 for Indian ferrous players in Q1. While operating leverage is typically lower in Q1 compared to a strong Q4, JSPL stands out due to its low leverage and high projected volume growth.
Global Landscape: China’s Impact
Globally, China’s HRC prices have seen a correction, trading at $445/tonne (down $22/tonne from Q4) due to oversupply and subdued domestic demand. China’s steel exports have surged, putting pressure on global prices. However, China’s announced intention to reduce domestic steel production could provide support to prices if meaningfully implemented.