CLSA downgrades metal companies on weak demand from China

Mumbai: Foreign brokerage firm CLSA has downgraded shares of Tata Steel, JSW Steel and Hindalco Industries saying that deteriorating Chinese demand outlook is likely to continue to weigh on commodity prices. The brokerage has cut earnings per share estimates for the FY20-FY21 period by 9-38 per cent to factor in lower commodity prices and a stronger rupee.


“We expect large cuts to street estimates ahead,” said CLSA.


Shares of Tata Steel ended down 4 per cent at Rs 493.85 on Wednesday while JSW Steel and Hindalco ended down 5 per cent and 3.8 per cent respectively.

CLSA downgraded Tata Steel to sell from buy and cut target price to Rs 460 from Rs 855. JSW Steel was downgraded to underperform from sell by CLSA and target price was lowered to Rs 260 from Rs 375. The brokerage has downgraded Hindalco to underperform from sell and trimmed target price to Rs 210 from Rs 255.

CLSA has maintained buy rating on Vedanta and Coal India. However, target price for Vedanta has been cut to Rs 250 from Rs 300 while target price for Coal India has been reduced to Rs 310 from Rs 360 by CLSA.

2018 was a tough year for commodities despite decent global growth led by concerns on Chinese demand, escalating trade wars and benign winter cuts in China, said CLSA.

The brokerage said the calendar year 2019 is likely to offer little respite because of the deteriorating Chinese demand outlook.

“...India’s steel market is on the cusp of multi-year tightening due to insufficient capacity additions and we expect imports to rise sharply in coming years. However, the deterioration in global steel industry outlook is weighing down on Indian steel prices, weakening the earnings outlook of the steel companies,” said CLSA.

The brokerage is relatively more positive on Coal India and Vedanta.

The brokerage cut FY20-FY21 EPS estimates for Vedanta by 22-23 per cent on lower oil prices and stronger rupee but added that the company has decent volume growth, better earnings trajectory and an attractive 8 per cent dividend yield, it said.

CLSA sees Coal India as a defensive play amid the global headwinds in the resources sector.

While production growth for Coal India has been patchy but demand outlook for coal in India remains healthy, said CLSA.