From Tata Steel to Hindustan Zinc, metal firms yet to deliver on hope

Though buoyant on bourses, their earnings, sales have lagged overall listed universe in past 2 yrs

Metal and mining companies, including Tata Steel, Hindalco, Vedanta, Hindu­stan Zinc, and Coal India, have emerged as leading performers on the stock exchanges over the past year. The BSE Metal index has surged by approximately 61 per cent during this period, outpacing the 16 per cent rally in the BSE Sensex.

This rally in metal and mining stocks, however, is driven more by future expectations than by accelerated earnings growth in recent quarters.
 

The combined net profit of these companies — excluding Tata Steel, which is yet to announce its Q4FY24 results — remained flat on a year-on-year (Y-o-Y) basis in the March quarter, while their net sales declined by 1.3 per cent in the same quarter, 

marking their worst performance in the past 15 quarters.
 

Metal and mining companies have outperformed their corporate peers on the stock exchanges during most of the post-Covid period but have underperformed them in terms of financial performance.
 

The BSE Metal index has risen by 113 per cent in the past two years, surpassing the BSE Sensex, which has increased by 41.8 per cent in the same period. However, the combined quarterly net profit of listed metal and mining companies has fallen by 26 per cent during this period, from Rs 28,720.7 crore in Q4FY22 to Rs 21,151.7 crore in Q4FY24. In contrast, the combined net profit of 1,604 listed companies across sectors that have reported their March quarter results, so far, has risen by 38.4 per cent — from Rs 2.44 trillion in Q4FY22 to Rs 3.38 trillion in Q4FY24.

Metal and mining companies have also lagged in terms of revenue growth. Over the past two years, the combined quarterly net sales of metal and mining companies have increased by a mere 0.81 per cent, from Rs 2.63 trillion in Q4FY22 to Rs 2.66 trillion in Q4FY24. In comparison, the combined net sales (gross interest income in the case of bank & non-banking lenders) of all listed companies in Business Standard’s sample have risen by 24 per cent, from Rs 26.35 trillion in March 2022 to Rs 32.7 trillion in March 2024.
 

Analysts attribute the rally in metal and mining stocks to investors’ expectations of a sharp upturn in the companies’ earnings in the upcoming quarters, driven by increased industrial demand from China, Western Europe, and North America. 
 

“Metal stocks have benefitted from a rise in the price of industrial metals in recent weeks, driven by an improvement in the Purchasing Managers’ Index (PMI) in major economies,” says Dhananjay Sinha, co-head of equities and head of Research of Strategy and Economics at Systematix Group. “The global PMI is now in the expansionary zone of 50.6 from around 48 in September last year. This has raised the hope of higher demand for industrial metals, such as steel, aluminium, copper, and zinc.”
 

The market sentiment around metal and mining stocks has also been boosted by a fiscal stimulus worth nearly $700 billion announced by China in March this year, along with a $42 billion rescue package for its beleaguered housing sector announced last week. These measures have raised expectations of increased demand for industrial metals from the world’s second-largest economy and the largest consumer of industrial metals which accounts for 50-60 per cent of the overall demand.
 

This has fuelled a rally in the London Metal Exchange Index (LMEX), which tracks the prices of six key base metals and is up 18.6 per cent year-to-date and 21.2 per cent since the end of June last year. In contrast, the LMEX declined by 16.4 per cent between December 2021 and December 2023. The LMEX is currently trading at 4,462, up from 3,762.1 at the end of December 2023.
 

This is expected to benefit India’s leading non-ferrous metal producers, such as Hindalco, Vedanta, Hindustan Zinc, and National Aluminium. However, a similar buoyancy is missing in the prices of iron and steel in key markets like China.