GR Exclusive: Govt Focus On Infra Development Likely To Benefit Mining Sector

Analysts at Prabhudas Lilladher initiated its coverage on metal & mining sector and anticipate it to report weak performance in 3QFY24 amid sluggish steel prices and higher coking coal prices. Prabhudas Lilladher said, "Domestic demand was relatively weak in this quarter, affected by festivities and state elections. 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, The key monitorables to watch out include GoI's stand on rising imports, rising coking coal prices, progress on capex, and demand from China & developed countries."

The analyst has also listed the top stocks that investors can buy that include NMDC shares, Jindal Steel & Power share, and Hindalco shares.

Meanwhile, Prem Khandelwal, CFO, IMFA (Indian Metals and Ferro Alloys Ltd) said, "As we look forward to the upcoming budget, we are optimistic that the government's focus on infrastructure development will benefit the mining sector also at large. Also, simplifying regulations and procedures related to the mining and manufacturing sectors will facilitate investment and business growth. We believe that a conducive policy environment will be instrumental in driving the sector's resilience and contribution to the nation's economic progress."

We look forward to the government's continued support and partnership in achieving and propelling the sector ahead. We at IMFA are bullish about the new year as we eagerly anticipate the new growth prospects with the inauguration of the greenfield project at Kalinganagar. The establishment of 100,000 tpa ferro chrome facility is a testament to our commitment to enhancing natural resource utilization and supporting the Make in India initiative, added Prem Khandelwal.

Ferro-chrome is a crucial raw material used for making stainless steel.

Weak Sequential Performance For Steel: Steel companies are likely to deliver weak sequential performance as EBITDA per ton stands impacted by lower increase in NSR and RM prices remain higher. Companies will benefit from prior period low cost coking coal inventories in 2HFY24 and depending upon inventory lag will deliver 3Q performance. We expect average realization to increase 1-3% for the quarter despite weak HRC prices due to long term OEM contracts and relatively better long product prices.

"Flat steel products have declined 1% QoQ, while long steel products have increased 4% QoQ. A recent sharp jump in coking coal prices may dent steel margins in 4QFY24, unless price hikes are taken. Currently, domestic steel prices are at substantial discount on import parity basis and this may restrain imports going forward," said Prabhudas Lilladher.

Coking coal prices have inched up 2.2% WoW at USD 335/t while iron ore 62% grade declined 2.3% over the same period. The Indian Government plans to set up a state backed consortium for coking coal imports which remains volatile due to supply shortages. One of the criteria is to diversify supplies coming from Australia that accounts for more than half of the coal imports, said Prabhudas Lilladher.

LME Aluminium Prices Remain Range Bound: Performance of non-ferrous companies under our universe are expected to improve on stable LME aluminium prices (+2% QoQ) and better volumes. HNDL's copper volumes would be impacted due to maintenance shutdown, while Novelis is relatively weaker in seasonally weak quarter. Falling TcRc margins due to reduction in global concentrate mining could impact in near term. NALCO is expected to benefit from ramping up of Utkal-D mine & alumina volumes and better alumina prices (4% QoQ), added Prabhudas Lilladher.

Stocks To Buy, Accumulate: NMDC: We increase our FY24/FY25E earnings estimates by 7%/17% given rising iron ore prices in mid-November (NSR +7% QoQ) then again in January and upgrade the rating to 'Buy' from Accumulate with revised TP of Rs261 based on 6xFY26E EV/EBITDA (from earlier TP of Rs176 on 5x multiple) on stronger than expected delivery on both volumes and prices.

Jindal Steel & Power: The analyst has given buy call to Jindal Steel & Power share with target price of Rs 826 apiece.
Hindalco Industries: Prabhudas Lilladher has recommended buy rating to Hindalco Industries shares with target price of Rs 673 apiece.

Note: The views and opinions stated in the content belong to Prem Khandelwal, CFO, IMFA.

Disclaimer:

The recommendations made above are by Prabhudas Lilladher and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.