Hindalco, Coal India: UBS turns selectively bullish on Indian metal sector

Metals and mining sector in India is entering a phase of strong earnings delivery (FY26-28E CAGR at 12-31 per cent), according to a note by UBS, underpinned by supportive commodity prices, capacity expansion, and resilient domestic demand. 

 

Within the metal and mining segment, UBS has maintained a 'buy' rating toward aluminium stocks (Hindalco, Nalco). Within the coal segment, UBS has a positive view on Coal India, and a sell rating on NMDC, while they are cautious on the steel segment with a sell rating on Sail and a neutral stance on JSW Steel, Tata Steel and Jindal Steel Limited.

 

 

Aluminium remains is UBS' preferred sub-sector, that offers a mix of earnings growth (cyclical tailwinds), valuation support, and potential to deleverage. In contrast, they believe steel players are unlikely to see expansion in margins or valuations. 

 

"We expect coal producers to benefit from structural demand, while iron-ore producers face operational bottlenecks and rising leverage. Our ratings reflect this, with our Buys skewed toward aluminium names (consensus view is more balanced) and coal exposure, while we are cautious on steel names (consensus view is more bullish)," wrote Rwibhu Aon and Yash Bohra of UBS in a recent note. 

Metal stocks

 

At the bourses, meanwhile, the Nifty Metal index has been an outperformer, rallying around 17 per cent thus far in calendar year 2026 (CY26) as against 8 per cent dip in the Nifty 50, ACE Equity data shows. 

 

Among individual stocks, Lloyds Metals & Energy, Steel Authority Of India (Sail), and Nalco have been among the top gainers that surged up to 32 per cent during this period, data suggests. News-driven Vedanta and Hindustan Zinc have been among the laggards, falling up to 7 per cent during this period.

 

Sub-segments

 

Aluminium

 

UBS global team expects aluminium prices to sustain above $3,000 per tonne over FY27-29E, with demand outpacing disrupted supplies. A strong revenue tailwind and a low-cost structure allows disproportionate EBITDA expansion for India’s integrated aluminium players, UBS said.

 

Nalco, UBS highlights, is a pure play on the theme, and they expect FY26-28E EBITDA CAGR at 31 per cent (40-50 per cent above consensus). 

 

For Hindalco, with its extensive downstream exposure, UBS sees FY26-28E EBITDA CAGR at 26 per cent (10-20 per cent above consensus), and views its Novelis subsidiary's turnaround and its incremental capacity additions as an added advantage. "While valuations are slightly above historical averages, earnings upgrades and execution should support further upside," the UBS note said.

 

Steel

 

While domestic sector dynamics are broadly supportive (5-6 per cent demand growth and protective policies like safeguard duty), UBS believes the stock return potential from here on looks limited, given constrained spreads and relatively elevated valuations. That apart, they expect a limited upside of 1 - 2 per cent in steel prices from the current levels. SEE GRAPHIC

 

UBS estimates JSW to achieve FY26–28E volume/EBITDA CAGRs of 10 per cent/20 per cent. For Tata Steel, valuations, the UBS note said, seem fair relative to modest India growth (FY26-28E volume/EBITDA CAGRs of 6 per cent/11 per cent), while they believe a European turnaround is already reflected in consensus. 

 

"SAIL stock has outperformed domestic and regional peers in recent months, but structural growth constraints (FY26-28E volume CAGR of 2 per cent) and rising leverage (start of capex cycle) could weigh on the counter. We initiate JSW (price target: Rs1,400), Tata Steel (price target: Rs220) and Jindal Steel (price target: Rs1,300) at Neutral, and SAIL (price target: Rs170) at Sell," Aon and Bohra wrote.

 

Mining

 

Coal India, UBS said, could be a structural beneficiary of India’s growing energy demand. Despite modest volume growth (3 per cent FY26-28E CAGR), a stable earnings outlook, UBS said, translates to a dividend yield of 7-8 per cent. The company's current 5.4x EV/EBITDA and 2.1x P/B are attractive, UBS said, compared to their historical averages, offering attractive risk-reward. 

 

"In contrast, NMDC faces headwinds from potential execution challenges and flattish iron ore pricing. NMDC’s rising capex towards expansion and diversification could drive higher leverage, while current valuations appear stretched (20-25 per cent above historical EV/EBITDA) relative to growth. We initiate COAL (price target: Rs550) at Buy and NMDC (price target: Rs80) at Sell," UBS said.