Tata Steel, JSW Steel, JSPL, SAIL: PL shares Q3 metals & mining preview, revises stock price targets

Domestic brokerage Prabhudas Lilladher expects its metals converge stocks to deliver a weak set of numbers in the December quarter. For steelmakers, it cited sluggish steel prices and higher coking coal prices. Domestic demand was relatively weak in the quarter, affected by festivities and state elections, it said.

"Steel prices declined post October on higher imports. Though low cost coking coal inventory of earlier months will aid profitability in this quarter yet steel companies may require price hikes in upcoming months to maintain margins, in our view," it said.

The government's stand on rising imports, rising coking coal prices,  progress on capex and demand from China and developed countries would be keenly watched it said while suggesting NMDC Ltd, Jindal Steel & Power Ltd and Hindalco Industries Ltd as its top picks in the sector.

PL revises target prices

In the case of Tata Steel Ltd, it cut its FY24/25E Ebitda estimates by 9 per cent each, given weak TSE spreads plus high repairs/maintenance expenses at Tata Steel UK and downgraded the rating for the stock to ‘Accumulate’ from 'Buy' but suggested a higher target of Rs 140 from earlier Rs 138 despite factoring in higher-than-expected losses from TSE in the near term.

Progress on ongoing consultation with unions is awaited and can delay the entire Tata Steel UK transition by few quarters, it said.

For SAIL, it revised downward its FY24E EPS by 14 per cent, given reduction in steel spreads and maintain ‘Accumulate’ rating with revised target of Rs 92 from Rs 95 earlier. In the case of NMDC, it increased its FY24/FY25E earnings estimates by 7 per cent/17 per cent,  given rising iron ore prices in mid-November and again in January. It upgraded the stock to ‘Buy’ from 'Accumulate' with revised target of Rs 261 based on 6 times FY26 EV/Ebitda against an earlier target of Rs 176, which was based on 5 times  on stronger than expected delivery on both volumes and prices.

For Hindalco, it believes the company is well-placed among metals space as Novelis is expected to witness gradual improvement in per tonne Ebitda over next few quarters, softer thermal coal prices and opening of captive coal mines to benefit India business; and rising focus on high margin value added products.

In the case of NMDC, PL said this company is also well-placed to capitalise on strong volume growth in domestic steel markets over next two years given its increased focus on mining business expected to deliver strong 11 per cent CAGR over FY23-26E to 53 mt iron ore volumes; doubling of railway line for evacuation and higher availability of rakes to support iron ore volume growth.

Besides it sees periodic price hikes as domestic demand remained strong and global iron ore pricing remains stable on expectation of improving Chinese demand.

In the case of Jindal Steel & Power Ltd, the PL has positive expectations on assumptions of strong 16 per cent CAGR in steel volumes over FY23-26E led by ongoing Angul capacity expansion,  commissioning of 5.5 mtpa Hot Strip mill that is seen to improve product mix, and also margin improvement in projects such as 12 mtpa pellet plant, 18mtpa slurry pipeline and four coal blocks to drive margins.

PL Q3 preview: Metals & mining sector

 

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