Buy 4 Metal Sector Stocks Including 1 Navratna & 2 Multibagger Small Cap: ICICI Direct

Valuation & outlook

The brokerage in the report has stated that the removal of export duty augurs well for domestic steel players albeit over a longer term horizon. Global steel demand has turned subdued since May 2022, which has put downward pressure on steel prices. As steel prices in the global market are currently muted, hence export volumes are likely to pick up notably only when global prices recover. However, the recent step of removal of export duty on steel products does provide an opportunity for domestic players to enhance their export volume notably as and when the global steel prices strengthens.

"While we do not expect a major uptick in domestic steel prices, we believe a significant sector headwind has been removed. Hence, we upward revise our EV/EBITDA multiple for JSW Steel, Tata Steel and NMDC. We also marginally upward revise our EBITDA/tonne estimate for Tata Steel and JSW Steel and sales volume estimate for JSW Steel. With respect to stainless steel players, we upward revise our EBITDA/tonne estimate for Jindal Stainless and Jindal Stainless (Hisar). We maintain our BUY rating on Jindal Stainless and Jindal Stainless (Hisar) and upgrade Tata Steel and NMDC from HOLD to BUY. We continue to maintain our HOLD rating on JSW Steel and SAIL," the brokerage has said.

Tata Steel Limited

Tata Steel is a large-cap stock of Tata Group having a market cap of Rs 1,27,527 crore. ICICI Direct sees a potential upside of up to 20% from its current level with the target price of Rs 125 per share. The stock on NSE is currently trading at Rs 104.30 per share, 0.05% up from its previous close. The stock has given 4.39% positive returns in 1 month, however, in a week, the stock has fallen 3.64%. In a year, it gave 10.22% negative returns. In 3 years, the stock has given maximum 161.5% multibagger returns on investments. In 5 years, it gave 47.11% positive returns.

The brokerage said, "With respect to Tata Steel, for standalone operations, we assume EBITDA/tonne of Rs 14500/tonne for FY23E (marginally upward revised from Rs 14000/tonne) and Rs 16500/tonne for FY24E (marginally upward revised from Rs 16000/tonne). We maintain volume estimate for Tata Steel . We now value standalone operations of Tata Steel at 6x FY24E EV/EBITDA (upward revised from 5.5x earlier) and continue to value European operations at 3x FY24E EV/EBITDA and other subsidiaries at 4x FY24E EV/EBITDA. Hence, we arrive at a target price of Rs 125. We upgrade Tata Steel from HOLD to BUY."

NMDC Limited

NMDC is India's largest producer of iron ore. It is a mid cap Navratna Company having a market cap of Rs 34,273.44 crore. The brokerage with a buy call, has estimated a target price of Rs 130 per share. It claims a potential upside of up to 12% from its current level. The NMDC stock is currently trading at Rs 116.35 per share on NSE, 0.95% up from its previous close. It has given 7.25% positive returns in 1 week, 10.32% negative returns in 1 month. In 1 year, the stock has fallen, giving a negative return of 13.79%. In 3 years, it gave the highest 16.61%, whereas, in 5 years, it has given 7.07% negative returns.

The brokerage said, "For NMDC, we upward revise our EBITDA/tonne estimate for both FY23E and FY24E. We now assume EBITDA/tonne of Rs 1400/tonne for FY23E (upward revised from Rs 1354/tonne earlier) and Rs 1500/tonne for FY24E (upward revised from Rs 1365/tonne earlier). We maintain our sales volume estimate for NMDC. We now valued NMDC at 5x FY24E EV/EBITDA (upward revised from 4.5x earlier) and arrive at a target price of Rs 130. We upgraded the stock from HOLD to BUY."

Jindal Stainless Limited (JSL)

JSL is a small-cap steel company having a market cap of Rs 9,269.74 crore. Jindal Stainless is one of the largest stainless steel conglomerates in India. The brokerage has estimated a target price of Rs 200 for the stock. According to the given target price, the stock is likely to give 13% returns if the stock is purchased at the current market price. The stock's current market price is Rs 177.45 per share, trading 1.77% down from its previous close. It is a multibagger steel stock given 356.19% massive positive returns in 3 years. The stock in 1 and 3 months has given 33.23% and 45.32% returns, respectively. In 1 year, it has given 5.7% returns. In 5 years, it gave 64.42% positive returns.

The brokerage said, "For Jindal Stainless (JSL), we upward revise our EBITDA/tonne estimate to Rs 19000/tonne for FY23E (upward revised from Rs 18000/tonne earlier) and Rs 20000/tonne for FY24E (upward revised from Rs 18000/tonne earlier). For JSL, we maintain our sales volume of 1.05 M T for FY23E and 1.2 M T for FY24E. We continue to value JSL on merged entity basis and arrive at a target price of Rs 200. We maintain our BUY rating on Jindal Stainless."

Jindal Stainless (Hisar) Limited (JSHL)

JSHL is another Small cap Jindal stock in the buy list of ICICI Direct. It has a market cap of Rs 7,956.90 crore. The brokerage sees a potential upside of 16% upside from its current level with a target price of Rs 390 per share. The JSHL stock on NSE is currently trading at Rs 228 per share, 1.97% down as compared to its previous close. The has performed well in terms of return in the past 5 years. It has given 30.72% in 1 month and 45.24% in 3 months, respectively. In a year, it gave 9.69% positive returns. In 3 years, it gave a multibagger return of 378.61%, whereas, in 5 years, it gave 54.05% positive return.

The brokerage said, "For Jindal Stainless (Hisar) (JSHL), we upward revise our EBITDA/tonne estimate to Rs 19000/tonne for FY23E (upward revised from Rs 18000/tonne earlier) and Rs 20000/tonne for FY24E (upward revised from Rs 18000/tonne earlier). For JSHL, we maintain our sales volume of 630000 tonnes for FY23E and 650000 tonnes for FY24E. We continue to value JSHL as per merger ratio and arrive at a target price of Rs 390. We maintain our BUY rating on Jindal Stainless (Hisar)."

Disclaimer

The stocks have been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.