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India Equity Research Reports, IPO and Stock News
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We recently met ~30 investors in our marketing in Asia. Overall most investors
are underweight India Materials with macro uncertainty the key concern. There is
interest to add from here as investors appear to agree that most stocks in the
sector have limited downside from here, but remain reluctant to pull the trigger.
Demand- When would it return: Investor concern on the demand scenario
for materials in India remains high. Key question was when do we see the
demand scenario improving.
COAL- TINA at play: 'There is No Alternative (TINA)’ was the common
answer from holders of COAL. While many have sold out in the recent rally
and the holders agree that there is limited upside and expect the scarcity
premium (of the only coal play with a utility like earnings profile) to sustain
even as they acknowledged our argument of increased policy uncertainty.
Over the course of July, there are many high powered meetings on coal
taking place and expectations are high on the entire GO/NO GO situation
being resolved. There were many questions on whether the GOVT would
consider another stake sale in COAL later this year. As of now there is no
such event on the card. Another key question was on inventory and whether
there can be meaningful declines over here. We sense little appetite from
holders to add at these levels and for current multiples to sustain, we need to
see positive surprises on volumes, ASPs.
TATA- Ownership has increased, but concerns on macro steel remain:
Investors remain perplexed on the recent slowdown in steel (and other
materials demand). While TATA's capacity addition remains a key
attraction, there are concerns on where would the demand come from. Post
the recent cash inflows from asset sales, for the first time post Corus
acquisition we sense some relief on the leverage situation by investors. On
Corus, investors remain concerned whether there can be any significant
improvement in profitability from current levels of $50/tm given the macro
demand situation. TATA remains a stock where if the seasonal steel price
improvement from Nov-Dec takes place, we sense more buyers stepping in.
STLT- Surprisingly high levels of interest: There was a high level of
interest in STLT given where valuations are. While very few hold it, the key
concerns are: a) are the regulatory issues easing; b) how would the power
business ramp up and c) any potential corporate restructuring given increase
in leverage at parent Vedanta. General feedback was that the company in
recent times has not delivered on expectations with the power business being
delayed, no clarity on coal, and no clarity on potential transfer pricing
between aluminum and coal segments. While investors appear to appreciate
the volume growth, we believe STLT would need to deliver on recent
projects for re-rating to take place. Investor appetite for any corporate
restructuring appears to remain very low.
Hindalco, JSW- Have corrected but not much appetite: On HNDL,
investors do not see aluminum rallying from current levels, and without
volume growth this year, we do not sense many buyers out there. Holders of
JSPL view it as a coal proxy and given its cost positions are not unduly
worried about the recent tariff reduction
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We recently met ~30 investors in our marketing in Asia. Overall most investors
are underweight India Materials with macro uncertainty the key concern. There is
interest to add from here as investors appear to agree that most stocks in the
sector have limited downside from here, but remain reluctant to pull the trigger.
Demand- When would it return: Investor concern on the demand scenario
for materials in India remains high. Key question was when do we see the
demand scenario improving.
COAL- TINA at play: 'There is No Alternative (TINA)’ was the common
answer from holders of COAL. While many have sold out in the recent rally
and the holders agree that there is limited upside and expect the scarcity
premium (of the only coal play with a utility like earnings profile) to sustain
even as they acknowledged our argument of increased policy uncertainty.
Over the course of July, there are many high powered meetings on coal
taking place and expectations are high on the entire GO/NO GO situation
being resolved. There were many questions on whether the GOVT would
consider another stake sale in COAL later this year. As of now there is no
such event on the card. Another key question was on inventory and whether
there can be meaningful declines over here. We sense little appetite from
holders to add at these levels and for current multiples to sustain, we need to
see positive surprises on volumes, ASPs.
TATA- Ownership has increased, but concerns on macro steel remain:
Investors remain perplexed on the recent slowdown in steel (and other
materials demand). While TATA's capacity addition remains a key
attraction, there are concerns on where would the demand come from. Post
the recent cash inflows from asset sales, for the first time post Corus
acquisition we sense some relief on the leverage situation by investors. On
Corus, investors remain concerned whether there can be any significant
improvement in profitability from current levels of $50/tm given the macro
demand situation. TATA remains a stock where if the seasonal steel price
improvement from Nov-Dec takes place, we sense more buyers stepping in.
STLT- Surprisingly high levels of interest: There was a high level of
interest in STLT given where valuations are. While very few hold it, the key
concerns are: a) are the regulatory issues easing; b) how would the power
business ramp up and c) any potential corporate restructuring given increase
in leverage at parent Vedanta. General feedback was that the company in
recent times has not delivered on expectations with the power business being
delayed, no clarity on coal, and no clarity on potential transfer pricing
between aluminum and coal segments. While investors appear to appreciate
the volume growth, we believe STLT would need to deliver on recent
projects for re-rating to take place. Investor appetite for any corporate
restructuring appears to remain very low.
Hindalco, JSW- Have corrected but not much appetite: On HNDL,
investors do not see aluminum rallying from current levels, and without
volume growth this year, we do not sense many buyers out there. Holders of
JSPL view it as a coal proxy and given its cost positions are not unduly
worried about the recent tariff reduction
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