The sell-off in metal stocks is not stopping. Nifty Metal Index was again seen trading down 1.5 percent today. The strength of the metal is eclipsed. Despite the good results of the companies in this sector, the sell-off continues. Shares of the giant steel companies have fallen up to 25%. This entire sector has been scanned by Sumit Mehrotra of CNBC-Awaaz.
Know why the metal sector is sometimes hot and sometimes soft, Sumit Mehrotra’s exclusive report on this-
Sumit Mehrotra said that the metal sector stocks are looking at this single digit PE. In this, many stocks are seen with a valuation of PE of 7, 8 or 3. Therefore, people may feel that there is such a cheap sector, so where is the problem in investing money in it. But the point to be noted is that when metal companies capex. Then their cycle reverses and goes towards speed, then their results are good.
If their results are good, then the EPS increases, due to which the PE is also good, but as the cycle turns, the EPS weakens and the PE also falls down, sometimes even loss is seen in it.
Explaining in detail, Sumit has given good results this time for metal companies. There was some problem of input cost but the realization of all has been better. Even the realizations of steel, copper, nickel, aluminum and iron have shown good results. Despite the good numbers, there has been weakness in the shares of the companies.
In this context, mainly the shares of four companies Tata Steel, Hidalco, Vedanta and JSPL have seen a big decline. Out of this, Hindalco’s shares fell by 33 per cent, Vedanta 25 per cent, Tata Steel 24 per cent and JSPL nearly 20 per cent.
Heavy debt on metal companies
Shares of companies have run out and some companies have declared dividend. However, the companies also have huge debt. According to the figures of the last financial year, Tata Steel has a debt of about Rs 76000 crore, JSW Steel Rs 71,000 crore, Hindalco Rs 68000 crore, Vedanta Rs 54000 crore and JSPL about Rs 17000 crore.
Sumit Mehrotra further said that due to the rise in metal prices, companies have also done capacity expansion. At present, Tata Steel has an existing capacity of 34 million tonnes, of which the company is looking to expand to 7 million tonnes. This share is currently available at a multiple of 5. At the same time, JSW Steel’s current capacity is 28 million tonnes, of which the company is looking to expand to 8.5 million tonnes. At present, this share is available at a multiple of 7.
Similarly, JSPL’s current capacity is 20 million tonnes, of which the company wants to expand by 5 million tonnes. At present, this share is being found at a multiple of 7.4.
Hindalco, on the other hand, has a capex of Rs 60,000 crore, which is available at a multiple of 6.5, while Vedanta has a capex of Rs 3,600 crore and is available at a multiple of 8.5.
Presenting this report, Sumit Mehrotra said that one of the reasons for the weakness of the metal is the high debt burden on the companies. On the other hand, the capex has also been announced by the companies. Companies have announced capex because of higher prices. On the other hand, companies have presented good numbers and due to good numbers, PE is looking cheap.
So overall Sumit said that investors should take a call in the metal with due care and caution.
Disclaimer: (The information provided here is for informational purposes only. It is important to mention here that investing in the market is subject to market risks. Always consult an expert before investing money as an investor. Money can be transferred from Moneycontrol to anyone. It is never advised to apply here.)