Metal Stocks Are Soaring, Here Are 2 Solid Picks

Jindal Steel and Power

Broking firm Motilal Oswal has placed a "buy" on the shares of Jindal Steel and Power with an upside of 20% from the current levels. The broking firm has set a target of Rs 550 on the stock from the current market price of Rs 457.

According to Motilal Oswal , Jindal Steel and Power achieved its highest ever Steel EBITDA/PAT of INR48.8b/INR27.7b in 4QFY21, supported by a strong pricing environment. Consolidated net debt fell further by INR34.7b QoQ to INR224b, implying a net debt/EBITDA of 1.53 times.

The broking firms has noted that the company has announced an INR180b capex at Angul to expand its Steel capacity by 85% to 15.9mtpa by FY25, at a very competitive cost of USD390/t.

 

Jindal Steel and Power: Margins to stay strong

Supported by higher prices, Motilal Oswal expects Steel margin to be strong in the near term after exhaustion of Sarda iron ore inventory.

"The announced 85% expansion in Steel capacity to 15.9mtpa in phases by FY25, at a competitive cost of USD390/t, should be RoCE accretive and improves the growth outlook of the business. Our target price of INR550/share is based on 5x FY23E EV/EBITDA for the Steel business and announced deal valuation for the Power business. At the CMP, the stock trades at an attractive 4.2x FY23E EV/EBITDA for the Steel business," the broking firm has said.

Hindalco: A 20% upside target

Hindalco is another stock that Motilal Oswal has set a 20% upside target. The brokerage has set an upside target of Rs 480 from the current market price of Rs 399.

The 4QFY21 result of Hindalco (HNDL)'s subsidiary Novelis highlights the inherent strength in the business as its margin continues to record new high every quarter. Adj. EBITDA grew 43% YoY to USD505m (7% above est.), driven by the highest ever margin of USD514/t (est. USD493/t). Novelis should see mix improvement in FY22 as share of auto volumes should increase on strong demand as well as capacity addition.

"We raise our consolidated FY22E/FY23E EBITDA by 17%/10%, factoring in improved margin for Novelis, and higher aluminum price assumption (+15%/5% to USD2,250/2,100 per ton for FY22/FY23). Reiterate buy," Motilal Oswal has said.

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