A worker uses a cutting torch at a workshop in a steel and iron market area. (Photographer: Prashanth Vishwanathan/Bloomberg)

Why Macquarie Is Betting On Indian Metals, Mining Sector

Global brokerage Macquarie is bullish on the Indian metals and mining sector as demand environment is supportive on the back of global growth remaining above long-term average. However, trade war uncertainty and China deleveraging remain the key challenges for the sector, it said in a report.

Equity exposure in bulks, i.e. steel, iron ore, coal, offers better risk reward to base metals amidst escalating trade war, it said. The commodity prices in the current financial year are significantly higher than financial year 2017 levels, which suggests that most of the metal companies would continue with the cash generation and deleveraging themes.

Macquarie though doesn’t expect any upside in commodity prices from current levels in one year but expects the strength of the commodity to sustain.

Commodity Outlook

  • Steel: Higher utilisation to lead to higher prices; prices to soften from spot levels.
  • Aluminium: Prices to be supported by declining cost pressures.
  • Zinc: Deficit leading to uptrend but new mine supply may lead to disruption.
  • Graphite: It is no longer a commodity.

Here are the top metal and mining sector picks by Macquarie:

Hindalco Industries Ltd.

  • Rating: Outperform ; with target price of Rs 290.
  • Backward integration reducing cost inflation.
  • Deleveraging continues; strong case of re-rating with growing spread business.

Vedanta Ltd.

  • Rating: Outperform ; with target price of 280.
  • Cost inflation offsets volume benefits.
  • Valuations at 5x enterprise value/Ebitda (attributable) still lower than peers.

Hindustan Zinc Ltd.

  • Rating: Neutral ; with target price of Rs 276.
  • Expansion to 1.2 million tonnes on track but FY19E volumes could be flattish.
  • Growth visibility present but lacks near-term triggers.

Tata Steel Ltd.

  • Rating: Not rated; with target price of Rs 568.
  • Focus on domestic business to drive growth.
  • Upside risk to earnings as steel prices remains resilient; key uncertainty remains about acquisition of Bhushan Power & Steel assets.

JSW Steel Ltd.

  • Rating: Outperform; with target price of Rs 382.
  • Ramp-up of iron ore mining in Karnataka- key positive.
  • Leaving peers far behind, company estimated to have 25-MT capacity by FY21.

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Coal India Ltd.

  • Rating: Outperform; with target price of Rs 335.
  • Costs to remain stable after recent five-year wage revision.
  • Divestment uncertainty is the last overhang.


  • Rating: Outperform; with target price of Rs 130.
  • The Rs 15,525-crore Nagarnar steel plant, though two years away from completion, remains a key positive.
  • A 3-MT steel plant available for free at 5.5xE V/Ebitda standalone earnings.

Nalco Ltd.

  • Rating: Outperform; with target price of Rs 82.
  • Play on alumina disruptions due to high sensitivity to alumina prices.
  • Alumina market remains vulnerable to supply disruptions with potential extension of strike at Alcoa.