Indian metal stocks better placed than rivals - analysts
Indian metal stocks have outperformed the broader market in India but some analysts believe there is still some gas left in the tank for everyone but aluminum
Author: Prashant Mehra and Swati Pandey
Posted: Wednesday , 26 Aug 2009
MUMBAI (Reuters) -
mineweb.co.za
Metal firms have sharply outperformed the broader market in India this year as a demand recovery and better-than-expected quarterly numbers convince investors that the worst of a slump is behind them.
The BSE Metal index has been the best-performing sector index so far in 2009, more than doubling as the benchmark 30-share BSE index .BSESN has risen more than 60 percent.
Most brokerages upgraded their ratings on metals stocks after April-June earnings with Sterlite Industries (STRL.BO: Quote), Hindustan Zinc (HZNC.BO: Quote) and steel stocks the favourites though tough times are seen for aluminium firms.
GUNG HO ON DEMAND
"Indian metal producers are better placed than overseas firms as domestic consumption is still growing at 6 to 7%," said Pawan Burde, analyst at Mumbai-based brokerage PINC Research.
Tata Steel (TISC.BO: Quote), the world's eighth-largest producer, has seen ratings upgrades since June, including from Macquarie and Nomura.
The stock may rise another 25-30%, even after more than doubling this year, as its Corus unit restarts capacity on reviving demand in Europe, boosting earnings, analysts said.
"Domestic demand has been quite robust. Government's focus has been on infrastructure, which has boosted requirement for steel," said Shraddha Shroff, analyst at K. R. Choksey Shares who has a 'buy' call on Tata.
Brokerages also favour Vedanta group (VED.L: Quote) firms Sterlite Industries and Hindustan Zinc because of attractive valuations.
JP Morgan raised Sterlite to 'overweight' in August, and UBS is betting on the company's massive expansion plans supported by its strong balance sheet. Fourteen of 22 analysts who cover Sterlite rate it as an 'outperform'.
"We are seeing about 20% upside in Sterlite with a target of 796-800 rupees," said Giriraj Daga, analyst at Khandwala Securities, which has a 'buy' rating on the stock. "Its expansion projects in power and metal will help in growth."
With demand for zinc picking up from galvanised steel makers, Hindustan Zinc has seen a 'buy' rating from 12 of 19 analysts.
SELL ON ALUMINIUM
Aluminium stocks are seen among the worst hit due to high inventory and massive capacity globally.
Top aluminium producer Hindalco has seen downgrades despite its Canadian unit Novelis turning profitable in the June quarter. After gains of 120% in 2009, the stock has run out of steam, with 15 of 22 analysts rating it 'underperform'.
"We are not positive on aluminium because the price rise is only a short term spike, the sector fundamentals have not changed," said PINC's Burde.
JP Morgan, which has an 'underweight' rating on Hindalco, expects little volume growth in its core business of upstream aluminium and copper smelting.
State-run National Aluminium Co (NALU.BO: Quote), which has reported declining revenues, is also seen as expensive after its price had doubled earlier in the year. Fifteen of 22 analysts have an 'underperform' rating on the stock, according to Reuters data.
""Nalco's selling prices have high correlation to LME prices, and if these fall, it will necessarily have to cut prices," said K.R.Choksey's Shroff, who has a 'sell' rating on the stock. "Aluminium prices have gone up too much." (Editing by John Mair and Valerie Lee) |
