Why Hindalco is Jefferies’ Preferred Stock Pick in Metals

With the Evergrande problem and power shortages clouding the outlook for Chinese demand for metals, production cuts and easing policy measures would be essential to support market balances and prices, analysts said. Jefferies in a report. While the backdrop for metals has become less encouraging over the past 2-3 months, the brokerage firm finds valuations for Hindalco, Tata Steel still reasonable.

The share of higher-margin Indian operations in Tata Steel’s volumes has also grown and the balance sheet is stronger than most of the past decade, Jefferies said. However, he prefers Hindalco over Tata Steel, JSW Steel in metals amid heightened uncertainty over metals prices and pressure on steel costs.

“HNDL (Hindalco) has lower exposure to commodity prices as its Novelis downstream business contributes around 55% of EBITDA and is experiencing strong demand across all segments,” the industry brokerage note said. Indian metals. of ??610.

During this time, he reduced Tata Steel’s EBITDA / EPS for FY22 by 5-8% taking into account the higher coking coal prices and reduced the target price to ??1,600 on lower multiples of ??2000 earlier. It also reduced JSW Steel’s target price by ??855 per share at ??785.

Coking coal prices have jumped amid severe supply disruptions in Mongolia and Australia. The prices of iron ore, on the other hand, have fallen. Tata Steel’s Indian business holds captive iron ore and therefore, according to Jefferies, would not benefit from lower ore prices, but would be affected by the rise in coking coal.

JSW Steel’s iron ore costs, however, are tied to Indian market prices and are therefore expected to have a lower impact on net raw material costs, according to the brokerage firm.

In aluminum, alumina prices have increased by around 35% since late August to $ 580 / t and a cost increase is positive for HNDL as it has 100% captive bauxite in India, he said. he declares.

The opinions and recommendations expressed above are those of individual analysts or brokerage firms, not Mint.

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