Analysts see more gains accruing, with supportive China trade data recently and expected curtailment in supplies from China
The strong rally in base metals, which is being supported by favourable China trade data and supply constraints, are likely to continue driving the outlook for key non-ferrous metal companies in the country. Hindalco Ltd, Vedanta Ltd, Hindustan Zinc Ltd, Nalco, etc., all remain in a sweet spot and have gained 37-133% since start of November.
Analysts see more gains accruing, with supportive China trade data recently and expected curtailment in supplies from China. “China’s trade data was firm and aluminium export volume jumped 25-30% y-o-y primarily as overseas demand rebounded strongly and supply constraints persisted ex-China “said analysts at Edelweiss Securities Ltd. As China authorities remain determined to slash output as part of its efforts to formulate a carbon emission programme, analysts expect prices to remain firm, benefiting Indian metal companies.
Hindalco, being largely an integrated aluminium manufacturer, remains a key beneficiary from the upside in aluminum prices. It is also seeing gains driven by its US subsidiary Novelis performance. Hindustan Zinc Limited, with rising zinc, lead and silver production, sees significant benefits from firm metal prices. Nalco’s Alumina demand and realizations have improved significantly. However, Vedanta, having interests in multiple metals such as aluminum, copper, zinc, lead, silver, etc. in its basket is to benefit substantially. The rallying crude prices are aiding its outlook further. Not surprisingly, the company saw fresh 52-week highs recently and continues trading near them. However, stock prices are likely to be governed by progress on the company’s plans to delist the company and success of its recent open offer.
Against the backdrop, Hindalco remains a key stock to be considered in the aluminum segment, and Hindustan Zinc Ltd in the zinc segment. Analysts have continued maintaining a positive outlook for these companies. Hindalco, too, has laid a five-year capital allocation roadmap which focuses on organic growth, deleveraging and shareholder playout. Free cash flows will be used for prudent debt reduction and growth through organic and downstream businesses reduces the risk of any upstream or large acquisition in the future, say analysts. Analysts at Kotak Institutional Equities had increased their Ebitda estimates by 2% and 3% for FY22 and FY23 respectively as they factor timely contribution from a few ongoing projects and build higher growth capex in FY22 and FY23. Ebitda is earnings before interest, tax, depreciation and amortization.