ICICI Securities’ top 6 stock picks from the metals and Indian gas sectors

Market


After the Petroleum and Natural Gas Regulatory Board (PNGRB) last week adopted a number of changes to the regulations governing pipeline tariffs, the brokerage company ICICI Securities is optimistic regarding the Indian gas industry. Gujarat State Petronet (GSPL) and GAIL have been selected by the brokerage as potential investments in the Indian gas market. On the other hand, ICICI Securities has given Jindal Stainless, Jindal Steel, SMEL, and APL Apollo a buy rating saying it is bullish on the metals and mining industry.

Metals & Mining Stocks To Buy

The research analysts of the broking firm ICICI Securities said today that “HRC price in traders’ market remained broadly unchanged compared to last week as domestic prices remain at ~12% premium to landed price of imports. In longs, post knee-jerk reaction of 10-12% price increase in products across the DRI-IF value chain on roll-back of export duty, we saw some retracement. That said, we still perceive longs to be placed better than flats due to resumption of pellet exports and demand from infrastructure generally picking up in the second half of the year. Regional prices were unchanged except China- down US$20/te WoW. Going ahead, we perceive the rise in covid cases in China as the biggest threat to steel demand, which might keep global prices low. We maintain cautious view on ferrous space with JSPL (TP: Rs.605) and Shyam Metallics (TP: Rs425) as our key picks. We are also positive on APL Apollo (TP: Rs1,225) as being a downstream player, it is relatively insulated from adverse price movements.”

They further claimed that “In our view, weak global demand and prices might result in roll-back of export duty not having the desired effect as exports might fail to take off. Our channel checks indicate dealers are awaiting list prices by mills for Dec-22 before taking a call on imports. Hence, we see sheet prices to be relatively at risk. In case of longs, resumption of pellet exports comes as a relief for DRI-IF based players though export margins are considerably lower. We maintain cautious view on ferrous space with JSPL (TP: Rs605) and Shyam Metalics (TP: Rs425) as our key picks owing to their long-heavy product portfolio. We also like APL Apollo (TP: Rs1225) as it is relatively not impacted by the adverse price movement.”

Oil & Gas and Petrochemicals Stocks To Buy

The research analysts of the broking firm ICICI Securities said today in a report that “A series of amendments have been made to pipeline tariff regulations by the Petroleum and Natural Gas Regulatory Board (PNGRB) last week, with changes made to volume, tax rate, opex, capacity etc. Both the listed gas transmission players GAIL and GSPL should largely benefit from these measures, in our view. For GSPL, in particular, the amendments related to capacity expansion, tax rate, slower ramp up and SUG are welcome, given the apprehension investors have had for a long time on the extent of tariff cuts post FY23. With these amendments in place, GSPL can see as much as 11-12% increase in FY24E EPS, while for GAIL the impact would be <2% as per rough estimates. We conservatively still build ~5% cut for tariffs for GSPL FY24E onwards (vs 11% earlier) while for GAIL we assume a smaller 2% increment vs previous estimates, raising our target price to Rs400/sh for GSPL (Rs383) and Rs137/sh for GAIL (Rs135). Reiterate BUY on both the stocks.”

They further added that “We believe Gujarat State Petronet (GSPL) is set to be a material beneficiary of these changes in regulations. Apprehensions on the treatment of capacity expansions, clarity on SUG inclusion and applicability of the adjustment for lower tax rate adopted by GSPL (25.2%) vs the higher rate assumed in earlier tariff order (33.3%) were major roadblocks in its Rs17bn expansion plans. This could accelerate expansion plans now, helping transmission volumes as well. GAIL will likely benefit as well with the concept of integrated tariffs for its interconnected pipelines helping boost transmission segment earnings. While the final calculations for tariffs will be done till March 23, by when the final tariff orders are expected, our sense of these changes have driven a material 7.6/0.9% uptick in FY24E EPS for GSPL / GAIL, respectively. Reiterate BUY on both the stocks.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.


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