Rakesh Jhunjhunwala, Radhakishan Damani, Basant Maheshwari gung-ho on this steel major; should you invest?
Many stocks in the sector are trading at their lifetime highs with valuations touching 2 times of book value
Amid the ongoing rally in the metal stocks on Dalal Street, names of ace stock pickers including Radhakishan Damani and Basant Maheshwari appeared along with Rakesh Jhunjhunwala in the list of top 500 shareholders of state-owned Steel Authority of India (Sail).
Data available on the website of the steel major showed that Radhakishan Damani together with his family members held more than 2 crore shares of Steel Authority of India as of June 30. On the other hand, Basant Maheshwari HUF and Basant Maheshwari together held 79.40 lakh shares.
Earlier on July 15, the latest shareholding pattern showed that Rakesh Jhunjhunwala had 5.75 crore shares, or 1.39% stake in the steel major. He was not among the key shareholders of the company in the preceding quarters.
Stock performance
On a year-to-date basis, shares of SAIL have jumped over 80% to Rs 134 on July 28 against Rs 74.10 on December 31. On the other hand, the BSE Metal index rallied 73% during the same period. Other metal majors including Tata Steel, JSW Steel, Hindalco, Vedanta and Jindal Steel and Power have advanced between 57%-112% YTD.
This outperformance is driven by rising prices, strong global demand and supply-side constraints from China. Many stocks in the sector are trading at their lifetime highs with valuations touching 2 times of book value. While most analysts suggest that are multiple tailwinds in the sector, but some see this as irrational exuberance.
Here’s what Jhunjhunwala said
Earlier in June Rakesh Jhunjhunwala, in an interview with CNBC TV18 said the commodity supercycle has just started and it will stay here for at least 6-7 years. “I am extremely bullish on metal stocks in terms of earnings and valuation. Steel stocks are valued at 5x earnings and people still doubt in these names,” he added.
The market maven is also positive on the entire PSU pack as well as healthcare firms. He thinks that the government is very serious about divestment. “Govt is determined and I am also bullish on banks and on the so-called inefficient banks whether in the public sector space. You may see the biggest upside in earnings,” he added.
Brokerage view
In its report on July 13, Spark Capital said that steel prices to trade at $650-$700, up $100-$150 as compared with the previous cycle. “We expect higher costs coupled with 20Y high capacity utilisation levels of 80%, to keep the prices relatively higher. Also, China’s cost structure is at least $150 per tonne higher and the gap may not completely narrow,” the brokerage said.
It added that listed names have reduced their net debt by Rs 50,000 crore in FY21 (25% of FY20 debt) and are likely to pare down additional Rs 50,000-60,000 crore over the next 2 years (50% debt reduction vs FY20) despite rising capex. Spark Capital has a ‘Buy’ rating on Tata Steel and SAIL with a price target of Rs 1,600 and Rs 165, respectively.