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Optimistic Outlook of Metals Sector

October 20, 2018

A strong air of optimism rules the outlook for metals sector as a whole led by solid demand environment, favourable pricing scenario, strong cash flow generation and focus on deleveraging to improve the balance sheet, according to Centrum Research. The brokerage hosted an exclusive investor conference titled ‘The Metal Medley’ on the metals sector in Mumbai recently, which brought together some 16 companies covering all sub-sectors like ferrous, non-ferrous, pipes, refractories, graphite electrodes and other ancillaries. Listing out the highlights of the meet, Centrum said in a report that large cap ferrous names sounded optimistic on demand and signalled strong focus on capacity creation. While investors were concerned that deleveraging would be taking a backseat with renewed focus of the companies in undertaking capex for both organic and inorganic expansions, companies sounded confident of balancing the cash flows and also expected the current cycle to sustain in medium term. Pipe companies were confident about sustenance of strong order inflow and robust earnings which is expected to result in strong cash flows. This will be utilised for either deleveraging or expansion of product basket, the report added. Ferrous consumables like electrodes and refractories indicated robust volumes and strong earnings growth driven by strong underlying demand and solid entry barriers in their businesses, while strong midcap ferrous companies were in the midst of finalising their expansion plans as they boast of strong balance sheets and are running at optimum utilisations, it added. Sharing its recommendation, the Centrum report said: “In largecaps, we remain positive on Tata Steel and Hindalco in ferrous and non-ferrous pack respectively. We like Coal India in the large cap mining space. Among midcaps, we like Vesuvius India and IFGL and are positive on select ferrous midcap stocks like Tata Metaliks and Kirloskar Ferrous due to their strong business model and growth prospects.”

 

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