Hindalco, Sterlite Industries: More upside possible

Despite the run-up seen since November, analysts remain bullish on these counters.


Most non-ferrous metal players, especially Sterlite Industries and Hindalco, have seen a run-up in their stock prices from mid-November. The stocks trade 19 per cent and 11.3 per cent higher since the closing lows on 19 November, respectively despite the profit booking seen in December.

The rise comes on the back of an up move seen in underlying commodity prices on the London Metals Exchange (LME). The Aluminium prices on the LME have rebounded from sub $1900 a tonne levels in the beginning of November to $2121 a tonne levels now, marking around 12 per cent upside. Copper, on the other hand, has rebounded from $7550 to $ 8000 a tonne now (almost 6 per cent upside). Zinc too has rebounded more than 14 per cent from $1780 a tonne levels to $ 2037.5 a tonne now.

All this has been positive for the stocks and given the under ownership and reasonable valuation, analysts at JP Morgan observe that they are not surprised by the stock price appreciation and expect a further upside in these counters.

Positive triggers

Metal and mining players, apart from subdued LME prices until recently, have also been impacted operationally by the regulatory uncertainty, stuck projects and faltering demand. A positive trigger can come from the news flow of the National Investment Board (NIB) and the decision on coal price pooling proposal, feel analysts. However, the environmental clearances for various projects may still be difficult to come by, they add.

A cut in the interest rates at the start of FY13 would be another positive for these companies. Most analysts expect the stocks to gallop from here on – similar to what was seen in the beginning of 2012 – till at least the news flow from China in terms of hard landing for the economy and a dip in commodity prices does not turn negative for these companies.

Key Chinese indicators viz. fixed asset Investment growth, industrial production, floor space sold and PMI are showing signs of stabilisation and a possible reversal. With these indicators improving from three – six year lows, analysts at Edelweiss see prospects of a recovery for Chinese metal demand in 2013. They see a similar picture for India as lead indicators point towards demand pick-up in FY14. Sterlite and Hindalco again remain their top picks according to them in the non-ferrous space.

As per Bloomberg Data, 26 out of 43 analysts polled have BUY rating while 12 have HOLD ratings for Sterlite. For Hindalco, 20 out of 47 analysts still have BUY rating, while 13 analysts maintain a HOLD rating.