Kotak Institutional Equities has upgraded earnings estimates and also raised the target price for Vedanta Ltd, National Aluminum Co Ltd, and Hindalco Industries Ltd following the recent rally in metal prices globally.
The brokerage raised Vedanta’s target price by 25.5 percent to Rs 320 a share. The target price for National Aluminum has been raised to Rs 130 from Rs 90 and that of Hindalco Industries from Rs 535 to Rs 675.
Hindalco remains its top pick and National Aluminum's top sell, Kotak said.
The brokerage revised earnings per share estimates for these stocks. For Nalco, the FY25E EPS has been revised to Rs 14 from Rs 8.4, Hindalco's EPS for FY25 has been adjusted to Rs 53 from Rs 44, and Vedanta's to Rs 28 from Rs 21.
The latest round of sanctions on Russian metals triggered a surge in global prices of copper, aluminum, and nickel last week.
The UK and US imposed sanctions, effectively banning the trading of new Russian supplies of these vital industrial metals on major exchanges. The action followed these governments' bans on the delivery of new Russian supplies to the London Metal Exchange and the Chicago Mercantile Exchange.
"Aluminum demand in 1QCY24 has surprised expectations, mainly led by China, whereas ex-China demand is showing signs of bottoming out. A combination of better demand and rigid supply, due to power shortages in China, pushes the market balance into a deficit in CY2024/25E from a surplus earlier.
“Metal prices further rallied in April 2024 on the news of sanctions on Russia by the US/UK. However, we do not see it as structurally impacting demand-supply as it should just realign trade flows,” Kotak said in its report.
Subdued demand expectations at the beginning of 2024 led to low metal stocks among consumers and distributors. However, 1QCY24 has witnessed a noticeable recovery in demand, prompting restocking ahead of a seasonally strong 2QCY24. CRU estimates China's demand to be at 9 percent YoY, outpacing a supply increase of 3.9 percent YoY in 1QCY24E, the report said.
Demand outside China remains subdued, with growth of 0.3 percent in 1QCY24E; however, the sequential improvement hints at a potential turnaround.
Kotak has upgraded global demand estimates to 2.6 percent/1.5 percent yoy in CY2024/25E from 1.2 percent/0.6 percent earlier, primarily driven by China.
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