Vedanta, Tata Steel, JSPL, Hindalco: Metals & mining stocks that CLSA prefers

Foreign brokerage CLSA has reduced its FY24-26 Ebitda estimates for Tata Steel Ltd and Jindal Steel & Power Ltd (JSPL) by 1-12 per cent on higher costs and also a delay in capacity expansion (for JSPL), and by 7-12 per cent for Vedanta on lower margins. In its latest report, the broking firm said its target prices for Tata Steel and Vedanta remained unchanged, AS it cut its target price for JSPL marginally to Rs 715 from Rs 720 apiece. It prefers Tata Steel in the ferrous sector and Hindalco Industries Ltd in the metals space.

CLSA said Chinese steel spreads have corrected to $100 per tonne, the lowest in at least the past 15 years, driven by a recent uptick in iron ore and coal prices. In terms of demand revival in China, while there have been several false starts through the year, recent initiatives could be marginally positive, CLSA said.

"As such, we see upside risk to regional spreads. While domestic steel prices are still at a premium to import parity, any uptick in regional prices could lend near-term support to Indian prices. That said, given the large capacity additions over the next three years, we believe Indian steel prices are unlikely to trade at a high premium," it said.

CLSA said integrated steel mills would be better placed if regional steel demand picks up. Given domestic iron ore costs are at a much sharper discount to global prices, non-integrated mills would benefit as well, CLSA said. CLSA however noted that China’s policy measures have not been able to drive a sustainable uptick in commodities demand yet.

"Expectations of a demand revival have led to an uptick in input costs, while steel prices have not reacted accordingly. Global iron ore/coking coal prices are up 10 per cent/21 per cent vs the September quarter average, while steel prices are largely flat. Chinese coking coal prices have seen a similar uptick, although they are still at a discount to Australia FOB.

CLSA has a target of Rs 590 on Hindalco Industries. Its target price is based on 5 times September 2025 EV/Ebitda estimates for Hindalco's domestic aluminium including Utkal Alumina and the copper business and 6x for Novelis. "The blended target EV/Ebitda is 5.7 times. We also factor in trailing capital work in progress (25 per cent discount), given the large capex announcement, in our SOTP valuation and investment in listed securities (at a 25 per cent discount)," it said.

Th brokerage has a target of Rs 145 on Tata Steel. CLSA said its target price on Tata Steel is based on a 6.5 times September 2025 EV/Ebitda for the India business and 4 times EV/Ebitda for Europe, which is largely in line with the midcycle multiple. It values standalone capital work-in-progress at a 50 per cent discount, with a year lag. Key risks include slower than expected capacity expansion. "Upside potential comes from higher-than-expected steel prices in India and Europe, as well as lower iron ore/coking coal prices," it said.

"The implied blended EV/Ebitda multiple is 4.8 times. Given its large ongoing capex programme, we value capital work in progress at a 50% discount. Given its exposure to multiple commodities, like zinc, aluminium, oil, etc, Vedanta is well placed to benefit from the current upcycle. Walking the talk on capital allocation policy and timely execution of expansion projects is key for re-rating," CLSA said on Vedanta. Risks for Vedanta, it said, include a slower-than-expected pickup in growth projects, weaker commodity prices and deviation from stated capital allocation policies.

Meanwhile, CLSA said it values the JSPL stock at 6 times September 2025C EV/Ebitda, at a premium to its historical median but below large cap peers. A decline in leverage, the strong growth pipeline and conversion into a pure-play steel company augur well, but macro and policy uncertainties remain headwinds, it said.

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