Coal India Ltd. is Jefferies' top bet among mining peers, as the brokerage cites improvements in volume growth and reasonable valuations.
Strong economic growth outlook, rising power consumption, and lower-than-expected costs are other key positives for Coal India, Jefferies said in a note.
The brokerage has raised the public sector undertaking's target price from Rs 385 earlier to Rs 425, implying a potential upside of 21%. Jefferies also upgraded the target price of other miners.
The big impact of the wage hike and e-auction price fall has already come through for Coal India, according to Jefferies. It expects a 5% annualised growth in earnings per share over FY23–26, despite a high base for FY23.
Improving Macros To Support Metals
Jefferies Global Metal & Mining team anticipates brighter macros in 2024. This could involve a potentially weaker dollar, lower bond yields, Fed rate cuts, increased demand in multiple emerging markets, stability in China, a surge in demand from India, a continuous need for metals due to ongoing energy transitions, and potential limitations in mine supply.
Favourable fiscal policy and investments are also expected to boost economic growth and keep deflation at bay in 2024, according to Jefferies' China team.
Price Spread Still At Decade Low
Asian flat steel prices have recovered 8% to $565 per tonne after falling by 22% over January to October from $670 to $525 per tonne. However, the price spread over raw materials is near the lowest level since 2010, thanks to rising iron ore and coking coal prices, the brokerage said. The potential for the steel company's margin improvement significantly rests on any positive developments in China.
India steel demand has been robust, up 15% year over year in the April–November period.
The brokerage expects demand to fall even as imports have risen in the past three months. The premium of Indian steel over landed imports has reduced from 11–14% in October–November to about 5% currently. This is expected to improve volumes for domestic steelmakers.
Jefferies forecasts prices for hot-rolled coil to be in the range of Rs 57,500–58,500 per tonne from the second half of this fiscal to FY26. It expects coking coal prices to come down from the current $334 to $275 per tonne by March 2024.
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