- UBS starts coverage on India metals with selective Buy, Neutral, and Sell ratings
- Earnings growth of 12-31% CAGR expected in metals and mining sector by FY26-FY28
- Aluminium producers Hindalco and NALCO rated Buy due to strong price and demand outlook
UBS has initiated coverage on India's metals and mining sector with a selective stance, arguing that while the industry is entering a period of strong earnings growth, valuations leave little room for error in several stocks. Supportive commodity prices, capacity additions and resilient domestic demand are expected to underpin growth.
The brokerage launched coverage on eight companies with Buy ratings on Hindalco, NALCO and Coal India, Neutral ratings on Tata Steel, JSW Steel and Jindal Steel, and Sell ratings on SAIL and NMDC.
According to UBS, the sector is poised for a strong earnings cycle, with earnings expected to grow at a 12-31% CAGR between FY26 and FY28. However, the brokerage believes stock selection will be critical as valuations across parts of the sector already reflect much of the optimism.
Aluminium Emerges as the Preferred Bet
UBS is most constructive on aluminium producers, citing favourable global demand-supply dynamics and operating leverage that it believes is not fully reflected in stock prices.
The brokerage initiated coverage on Hindalco with a Buy rating and a target price of Rs 1,325, implying nearly 30% upside from current levels. NALCO was also initiated with a Buy and a target price of Rs 460, offering potential upside of around 24%.
UBS expects aluminium prices to remain above $3,000 per tonne over FY27-FY29 as supply disruptions support the market. The brokerage believes integrated producers such as Hindalco and NALCO are well-positioned to translate higher aluminium prices into disproportionately stronger EBITDA growth.
Steel Outlook More Balanced
While domestic steel demand remains healthy and government measures such as safeguard duties provide support, UBS remains cautious on the sector. The brokerage expects limited upside to steel prices and believes valuations already discount much of the expected earnings recovery. As a result, it initiated coverage on Tata Steel (target price Rs 220), JSW Steel (Rs 1,400) and Jindal Steel (Rs 1,300) with Neutral ratings.
UBS expects JSW Steel to deliver strong volume-led earnings growth but believes the stock's valuation already reflects that optimism. For Tata Steel, the brokerage sees a potential European turnaround but notes that much of the improvement is already priced in.
Coal India Preferred, NMDC Faces Challenges
Within mining, UBS sees contrasting opportunities. Coal India was initiated with a Buy rating and a target price of Rs 550. The brokerage views the company as a structural beneficiary of India's growing energy demand, supported by stable earnings and an attractive dividend yield of 7-8%.
In contrast, UBS initiated NMDC with a Sell rating and a target price of Rs 80. The brokerage cited execution risks, rising capital expenditure and a relatively muted outlook for iron ore prices as key concerns.
SAIL was also assigned a Sell rating, with UBS arguing that structural growth constraints and rising leverage could weigh on the stock despite supportive industry conditions.
ALSO READ: Copper Zooms Past $14,000 To Near All-Time High: What's Behind Base Metal Rally?
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
