While the rally in metal stocks has picked up, global brokerage firm JPMorgan in its latest note, said it finds Steel Authority of India (SAIL) and National Aluminium Company’s (NALCO) underperformance puzzling, given attractive valuations and earnings Beta.

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The brokerage noted that SAIL is the worst-performing Indian steel stock, though earnings Beta to steel price is the highest while net debt is the lowest. Beta gauges a stock's responsiveness to changes in the bourses. JPMorgan has an overweight stance on the public sector steelmaker with a target price of Rs 115 per share, meaning a 26 percent upside from Wednesday’s closing price.

However, Equirus expects a 54 percent rise in the SAIL share price, and the stock is its top pick as Jindal Steel and Power has already seen a sharp re-rating and also there is uncertainty surrounding Tata Steel Europe. The brokerage has revised SAIL to ‘long’ from ‘add.’

On the other hand, JP Morgan says that China re-opening, better-than-feared Europe economic data, and investor flows into commodities drive equities higher. The brokerage forecasts a 25 percent higher than consensus on FY24 and sees an earnings upgrade cycle for SAIL.

Equirus has called SAIL a proxy play on higher iron ore prices globally. It said SAIL and Tata Steel benefit disproportionately when seaborne prices remain elevated.

SAIL can strengthen its balance sheet significantly amid muted capex, the brokerage said, adding that it believes any material expansion-based capex would happen post FY25E.

The steelmaker’s operating leverage alone shall bring benefits of Rs 2,500-300 per tonne while volume growth shall bring in benefits of Rs 1,800- 2,000 per tonne, adding that the company is likely to report a US$ 2 billion base case EBITDA for FY24E. Meanwhile, employee costs are a major portion of other costs.

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