In this installment of 5 interesting stocks, we analyze the effects of ongoing Russia-Ukraine conflict on the leading commodity and metal stocks in India:

• Coal India: This company’s stock price rose over 20% in three trading sessions after the Russia-Ukraine conflict intensified in the start of March. Globally, coal prices have more than doubled since the start of the war in Ukraine. Coal prices surged more than 2.5 times in just 15 days to touch $462 per tonne on March 10. Although coal prices have cooled down to trade at $325 per tonne, the elevated prices suggest fears of its supply chain disruption. 

The stock price of Coal India has been rising in anticipation of price hikes by the company. Coal India’s Chairman Pramod Agarwal, on a call with analysts, said that some of the company’s manufacturing units are finding it difficult to survive without a price hike. The world’s largest coal producer is facing cost pressures from a looming rise in salaries and on higher prices of diesel. However, with the rise in coal prices globally, the company may finally take price hikes to ease cost pressures.

India’s demand for coking coal, which is used in steelmaking, has been growing at a very fast rate. India imports a total of 50-55 million tonnes annually. To reduce its import dependence on Australia, India entered into an agreement with Russia last year to import coking coal. In light of the Ukraine situation, India’s steel minister Ram Chandra Prasad assured steelmakers of a solution to deal with the supply disruption. As if on cue, Bharat Coking Coal (BCCL), a subsidiary of Coal India, registered its highest production growth of around 66% in February to 2.93 million tonnes. With the supply disruption looming, Coal India stands to gain from the situation by increasing the production of coking coal. 

• Balrampur Chini Mills: The stock of this leading Indian sugar producer rose 12% in the past one week as the Russia-Ukraine conflict intensified. The UN Food and Agriculture Organization foresees a possible food crisis emerging out of the ongoing war owing to supply side constraints. Moreover, both Russia and Ukraine put a temporary halt on the exports of certain grains and sugar to ensure sufficient domestic supplies. While the export bans and protectionism policies enforced by certain nations in wake of the war will impact sugar supplies, the real impact comes from the skyrocketing crude oil prices. Spiraling energy prices have given a boost to ethanol demand and the same is expected to rise at a CAGR of over 5% globally and 15% in India between FY22-FY30. In India, a litre of ethanol is priced at Rs 63.45 while a litre of petrol is priced at Rs 95.41. This phenomenon is also pushing up the demand for sugar and ultimately its prices. Sugar futures on intercontinental exchange (ICE) traded at $19.3 per pound, close to a two-month high of $19.8 hit last week. Additionally, as sugar is increasingly diverted to ethanol production globally, exporters back home are witnessing a demand boost. Domestic exports are expected to rise by 8-11% YoY to 7.8-8.0 million tonnes in FY22. 

All in all, sugar producers like Balrampur Chini will not only see their sales volumes rising, but will also get a better price for their sugar produce and for the ethanol extracted (as fixed by the Centre). Their bread is buttered on both sides.

• NMDC: The mining giant may benefit from the supply chain disruption in global commodity markets caused by the Ukraine-Russia conflict. Amid the conflict the company has been able to hike prices for the third time since January 2022,  the prices of iron ore lumps and fines by Rs 400/ton. Overall prices have risen by 20% since January 2022. The price hikes are driven by strong steel and international pellet prices. Alongside price hikes, the miner’s production of iron ore grew 13% YoY to 8.87 million tonnes (MT) and sales grew by 17% YoY to 8.21 MT, during January-February 2022. NMDC has declared dividends worth Rs 14.74 per share in FY22, the highest in its history.

For FY23, NMDC has planned a capex of Rs 3,000 crore and Rs 1,500 crore of it is for the core mining business. The company plans to expand mining activities by setting up a 2.5 MT crushing plant and a 12 MT screening plant. It also expects to complete the demerger process of its upcoming 3 million tonnes per annum Nagarnar iron and steel plant (NISP) around April-June 2022. NISP will likely be commissioned by May–June 2022. The listing of NISP is planned for June-July 2022. The total investment by NMDC in NISP is Rs 17,000 crore through equity and around Rs 4,900 crore via debt. The company has set an ambitious target of producing 100 MT of iron ore by 2030.

• Steel Authority of India (SAIL): The steelmaker looks to capitalize on the traction in global metal prices caused by the Russia Ukraine conflict. In Q3FY22, the revenue of the company grew 27% YoY to Rs 25,398.4 crore and profit grew by 4.1% YoY to 1,528.5 crore. The steep rise in coking coal put pressure on the margins of the company. The company expects sales volume to grow 25% QoQ to 4.8 million tonnes (MT) of steel in Q4FY22, on the uptick in steel prices. It has already sold 1.6 MT in January 2022 and is confident of achieving an annual sales volume of 16.3 MT. It expects margin pressure to be partially offset by higher sales volume and higher prices in Q4FY22. Coking coal prices saw a 65% jump QoQ to Rs 25,000/tonne in Q3 and it is expected that the prices will increase further in Q4FY22 by Rs 2,000-3,000/tonne. SAIL announced a price hike due to the improving demand situation in India and expects margins to improve going forward.

The company's focus remains to lower its borrowings and has reduced them by 15% QoQ to Rs 19,128 crore in Q3FY22, mainly due to a reduction in trade receivables from Rs 8,100 crore to Rs 1,600 crore. The debt reduction target of achieving net-debt zero by Q1FY23 is now pushed towards the end of FY23. SAIL is working on a expansion plan given global demand, and has planned a capex of Rs 8,000 crore for FY23, double the capex for FY22.

• National Aluminium Company: This aluminum maker’s stock gained nearly 3% in trade on Wednesday. Nifty Metal also traded in green after it shed close to 4% on Tuesday. Metal stocks have been rallying since the Russia Ukraine war broke out. Analysts believe that metal stocks will continue to gain  in the geopolitical conflict. The company has already given out robust earning numbers in Q3FY22 with net profit rising 3.5X YoY to Rs 831 crore and gross margins improving 78 bps YoY to 84%. Net sales for the company surged 58.6% to Rs 2,378.8 crore in Q3FY22.

Aluminum prices have been rallying for a few weeks now. This is because the global aluminum market is already facing shortages because of production cuts in Europe because of high energy prices and supply restrictions from China. Further, with the US putting out sanctions on Russia, the supply of aluminum will get further disrupted causing aluminum prices to rise. This is likely to benefit Indian aluminum producers, especially National Aluminum Company (NALCO), according to a report from Bloomberg Quint. Since NALCO is one of the lowest-cost producers, the company stands to gain disproportionately, as expenses will not cloud its earnings for the upcoming quarters.

Analysts from Motilal Oswal second this and have revised their FY23 EBITDA estimates by 29% for the company. Dolat Capital expects the aluminum segment EBITDA to go up by 1.35% and alumina segment EBITDA to go up by 5% in FY23-FY24. Analysts from Motilal Oswal expect NALCO’s Q4FY22 will turn out to be a strong quarter in terms of earnings, hence maintaining a ‘Buy’ on the stock.

Trendlyne's analysts identify stocks that are seeing interesting price movement, analyst calls or new developments. These are not buy recommendations.