1. Shyam Metalics and Energy: This metals and mining company’s share price rose over 9% intraday on Wednesday after it announced the acquisition of Mittal Corp, paving its entry into the stainless steel business. However, on Thursday, the stock settled 2.1% lower following weakness in the market.

With Mittal Corp’s acquisition, Shyam Metalics aims to expand its existing 8.85 million tonnes per annum (MTPA) production capacity to 14.45 MTPA. With the rise in share price in reaction to the news, the company made it into a screener of stocks with RSI indicating price strength. However, looking at longer-term performance, the stock price has lost over 10% year-to-date. This could be due to the company’s net profit falling YoY for the past two quarters.

Speaking about the Mittal Corp deal, vice-chairman and managing director Brij Bhusan Agarwal said, “The acquisition cost is about Rs 450 crore and it will enable us to foray into stainless steel and special products, such as defence materials.” The management added that the company plans to further invest Rs 7,500 crore over the next five years to meet organic and inorganic growth plans. According to Trendlyne’s Forecaster estimates, Shyam Metalics’ capex is expected to rise 43.6% in FY23 to Rs 1,900 crore.

This metal company comes under “strong performer, under radar” in Trendlyne’s DVM classification. Strong Performer, Under Radar stocks are companies with high durability and valuation scores (above 50-55) and midrange momentum.

2. Finolex Industries: This plastic products manufacturer rose 15.8% over the past month, outperforming its industry by 12.2% in the same period. This uptrend comes on the back of rising demand for pipes driven by the irrigation, water supply and sanitation segments amid falling commodity prices. The management expects demand across segments to improve in the coming quarters as raw material costs decline. It believes the firm is well positioned to capitalise on the rise in demand, given its backward integration operations. The stock shows up in a screener for companies with improving RoA over the past two years. It also has a consensus recommendation of a ‘Buy’, according to Trendlyne’s Forecaster.

In Q2FY23, the firm posted a loss of Rs 95.4 crore due to a fall in PVC (Polyvinyl Chloride) resin prices against its high-priced inventory of raw materials and finished goods. The management expects margins to be under pressure in Q3FY23 due to high inventory costs. However, it expects to withstand the pressure given its robust balance sheet and positive cash flows. On the other hand, declining raw material costs led to lower pricing in Q2, which drove the rise in demand. The company’s sales volume rose as the pipes & fittings segment’s volume rose 7% YoY and resin sales volume increased 4% YoY.

The Indian piping industry is expected to benefit from the Centre increasing allocation toward infrastructure development and various water supply schemes, according to reports. The management is optimistic about the demand environment for pipes due to favourable government policies and initiatives. 

3. Indian Hotels Company: This hotel company fell over 4% in trade on Wednesday and 8.7% in the past week, taking cues from the broader markets. However, Motilal Oswal is bullish on the company and recommends a  ‘Buy’ rating with a target price of Rs 390. The brokerage expects Indian Hotels’ new brands Ama Stays, Qmin and Chambers to scale up rapidly and contribute 26% of the company’s operating profits by FY25. The brokerage adds that the strong demand momentum witnessed in FY22 will continue in the next few years, FY23-25E.

Recently, Puneet Chhatwal, Managing Director and CEO of Indian Hotels, said the company was well poised to deliver stronger growth in H2FY23 and on track to achieving the targets set under its new strategy. The company launched a new strategy called Ahvaan 2025 in May this year. It aims to build a portfolio of 300 hotels and post a  33% EBITDA margin with 35% EBITDA share contribution from new brands and management contracts by FY25-26.

ICICI Securities is also positive about the company and retained its ‘Add’ rating. It expects demand momentum to sustain in Q3FY23 as well, with strong leisure and business travel. The company, as a result, features in a screener where brokers upgraded recommendations or target prices in the past three months.

4. Balrampur Chini Mills: This sugar stock surged more than 3.5% in trade on Tuesday after the central government reduced GST on ethanol to 5% from 18%. This move comes as a boost to the government’s target to double ethanol blending with petrol to 20% by the end of 2023. And sugar companies are not complaining.

Balrampur Chini rose 11% in the past month alone and shows up in a screener of stocks giving consistently high returns for the past five years. The sugar industry rose 6.2% in the past month. The stock is also showing strong momentum and is trading above its short, medium and long-term averages.

The good news for sugar stocks does not end here. The Centre is mulling the possibility of increasing the export quota for sugar from January 2023. This will boost earnings for sugar companies in the coming quarters. On Monday, Balrampur Chini Mills also announced the commencement of commercial production of industrial alcohol with an additional capacity of 170 kilolitres per day (KLPD) at the Balrampur unit. The total distillation capacity of the company now stands at 1,050 KLPD. Systematix gives a ‘Buy’ recommendation on the stock, betting that the company will improve its sugarcane yield and increase its ethanol capacity.

The Centre’s production target for sugar is 4.1 crore tonnes in 2022-23, which is a 5% increase from the 2021-22 cycle. However, Reuters reported that India’s output for sugar is likely to fall by 7% in the ongoing marketing cycle (the marketing cycle for sugar begins in October). This is because adverse weather conditions may disrupt sugarcane yield. Low output may affect exports and global sugar prices.

5. JSW Steel: This metal stock rose more than 30% in trade in the past six months and recovered 42% from its 52-week low. The broader index Nifty Metal also surged 38% in the past six months. Metal stocks have been riding high because of a fall in coking coal prices and the removal of export duty on steel.

Coking coal prices play an important role here as 85% of demand is met through imports and a reduction signals lower costs for the company. In Q2FY23, raw material costs shot up 92.7% YoY to Rs 23,757 crore and the company reported a net loss of Rs 848 crore.

JSW Steel also recently finished a capacity expansion project at its Dolvi plant. The expansion plans were announced in Q3FY22 and the company was able to complete the project within a year. Also, the integration of Bhushan Power and Steel Company has proved to be beneficial as JSW Steel’s crude steel production rose 16% YoY to 1.69 MTPA in November. The company further plans to expand its capacity to 37 MTPA by FY25, from its current capacity of 27 MTPA. The stock shows up in a screener of stocks with improving RoA, RoE and RoCE in the past two years.

All this sounds good for JSW Steel, but risks to growth remain. In recent brokerage calls, Nomura and BOB Caps gave ‘Reduce’ and ‘Hold’ ratings for the stock. BOB Caps reduced its target price by 13% to Rs 650. Analysts believe that capacity expansion may be a good move for the company, but demand needs to improve at an equal pace. Hopefully, as China reopens its economy and scraps the ‘Zero Covid Policy’, industrial activity will improve in the coming months, boosting global demand. However, China’s PMI index fell to 48 in November from 49.2 in October (PMI index below 50 indicates a contraction in manufacturing activity), and streets are reportedly deserted across major cities as Covid rips through the population. 

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