The market needs to look at the valuations of steel companies with respect to earnings estimates, said Edelweiss Institutional Equities Amit Dixit on Monday, even as steel prices remain firm for the next couple of quarters.
On Hindaclo and Vedanta, “We have buy on Hindalco and Vedanta. Hindalco our target price is Rs 90 and Vedanta is Rs 170. Relatively we are more bullish on Hindalco,” he said in an interview to CNBC-TV18.
Dixit expects earnings for ferrous companies to be revised upwards.
“In case of valuations, it is very important to understand the perspective from earnings. If you look at consensus earnings for all the ferrous stocks – Tata Steel, JSW Steel, SAIL, etc., the consensus earnings have not been revised upwards as the underlying HRC price or underlying aluminium price movement in case of non-ferrous would have warranted. So, therefore valuations seems to be pretty high. As the street takes it into their numbers, you will find these valuations settling at a much lower level,” he said.
On steel prices, Dixit expects the prices to remain firm for next couple of quarters.
“Steel scarcity is the reality now. Everywhere you are not able to find steel and therefore the supply crunch is there. That is pulling the prices up. International iron ore, 6 months back people were suggesting that iron ore could go as low as USD 50 and now we are having it at $150. Combined with the steel shortage, you find global steel prices moving up and therefore Indian steel prices also typically tag along. So, next 3 months I see prices remaining pretty firm of these themes play out,” he said.
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