 "Emkay favours non-ferrous over steel; sees earnings upgrade in VEDL, Nalco")
In the metals and mining space, Emkay Global Financial Services believes non-ferrous metals are better placed, with higher earnings potential by FY27 — particularly for Vedanta and National Aluminium Company (Nalco) — supported by strong spot prices for aluminium, zinc and silver.
If current spot prices for aluminium, zinc and silver hold through FY27, Emkay estimates Vedanta and Nalco to see Earnings before interest, tax, depreciation and amortisation (Ebitda) upgrades of about 5.5 per cent and 4.9 per cent, respectively, versus base-case estimates.
For Hindalco, however, FY27 Ebitda appears broadly balanced at spot prices due to its hedging strategy, which dampens the impact of higher aluminium prices, according to the brokerage.
Further, the key divergence in earnings momentum of these companies stems from healthy prices for industrial metals.
“If aluminium, zinc, and silver prices stay higher for longer, near-term earnings would be due for an upgrade and work favorably for stock price performance,” noted Emkay.
Spot aluminium is currently about 3 per cent above the FY27 forecast of $2,700 per tonne, creating an earnings “upside skew” for exposed producers. ALSO READ | Sensex hits new high, surged over 14% post breakout in past; check outlook
Ferrous: cautious near-term, but market already pricing in recovery
On the other hand, Emkay is watchful of the ferrous segment, implying a sharp downside risk to earnings if the prices remain lower for longer.
The report highlighted that, at current hot-rolled coil (HRC) and long steel prices, there is a “sharp downside risk” to earnings if weak prices persist.
Even so, equity markets appear to be looking through the downturn. “The market is pricing in a potential price hike cycle with spread improvement of ₹3,000 per tonne already baked into estimates for steel equities, with a view that the current downturn is transient,” the brokerage noted.
They believe that an extension of safeguard duty, along with gradual absorption of excess supply, should eventually feed into a more durable recovery in steel prices, after what is described as a “transient soft patch” caused by a domestic supply–demand surplus. ALSO READ | HSBC sees more upside in steel stocks in 2026; likes Hindalco, Tata Steel
Valuations: Non-Ferrous more attractive on spot vs base case
Analysts note that major steel companies are currently valued at 6-8 times their estimated FY27 enterprise value to Ebitda (EV/Ebitda). However, if current low steel prices continue, their earnings (Ebitda) will likely fall, making their valuations appear higher.
“At prevailing spot HRC and long steel prices, the skew to lower Ebitda implies upward pressure on effective multiples, as earnings compress faster than EV adjustments,” analysts noted.
Further, Emkay sees steel valuations at spot prices as “trough-cycle” — not necessarily expensive in a cyclical context, but less compelling relative to non-ferrous peers, given the earnings risk.
“At spot commodity prices, with the upside/downside skew in Ebitda, non-ferrous equities appear better on a relative basis,” Emkay said.
What’s priced in?
At current stock prices, Emkay believes, in the non-ferrous space, the market is effectively discounting commodity prices, which are 7.5 per cent lower for Hindalco, 5.2 per cent lower for Vedanta, and 3 per cent lower for National Aluminium Company.