Indian Metals - New Order - Motilal Oswal

INDIAN METALS: New order; Top picks - Tata Steel, JSW Steel (ferrous) and Sterlite, Hindalco (non-ferrous)

With 20mtpa capacity likely to commission over the next 12-15 months, we expect temporary oversupply of steel in India. Margins will come under pressure.

Secondary producers have to face additional challenges of sourcing coal and the requisite grade of iron ore for sponge iron production due to dwindling supplies.

Global finished steel consumption is likely to grow by 68m tons in 2011 and by 55m tons in 2012. This will drive demand for seaborne trade by 95m tons in 2011.

Tata Steel's cash flows will grow on the back of both volume growth and margin expansion. JSW Steel will achieve the highest volume growth.

Sterlite Industries is our top pick in the non-ferrous space due to strong earnings growth in zinc, lead, silver and energy businesses. The outlook on zinc prices is bullish primarily from the supply side, as a couple of large mines are expected to get depleted over the next 2-3 years. We also like Hindalco due to the group's strong operating cash flows. Utkal Alumina, though delayed a bit, will boost Hindalco's earnings.

Source : Equity Bulls

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