Quarterly Analysis of Metals Sector – Q1

With India's rapid growth and development, the metal industry plays a pivotal role in fulfilling the nation's increasing infrastructure demands and supporting its evolving manufacturing sector. As the demand for metals continues to soar, investors are presented with unique opportunities and challenges to capitalise on this lucrative market. 

Discover lucrative metal investments in India with our insightful blog, empowering you to navigate the sector's intricacies and unlock its potential in a promising economy.

The Metal Sector: An Outline

The metal sector in India plays a crucial role in the nation's economy, contributing significantly to its GDP.

Involved in the extraction and processing of metals like gold, silver, iron ore, and copper, the sector has shown steady production volume growth over the years.

The metal sector in India has a history dating back to ancient times, with evidence of metalworking in iron and copper during the Indus Valley Civilisation, throughout the medieval and modern eras, advancements and exploitation of mineral resources led to significant growth. 

Today, the metal sector plays a crucial role in the economy, serving as a foundation for manufacturing and construction industries, contributing to GDP, generating employment, and bolstering foreign exchange reserves through exports. Its performance is closely tied to economic conditions, thriving during periods of growth and facing challenges during economic downturns.

The expansion of the manufacturing sector and government infrastructure development activities fuel the market, characterised by numerous players providing engineering solutions to clients.

Key Aspects of the Metal Sector

Here are some noteworthy aspects of the Indian metal sector-

• Profit 

The profit performance in the metal sector in India has been mixed in recent times. The sector has grown substantially in specific periods, driven by increased production and strong demand from domestic and international markets.

It has also faced challenges such as cheaper imports, demand fluctuations, and trade wars. 

Metal companies, including steel and aluminium producers, have reported significant net profits and declines in profit in different quarters. Despite challenges, the sector's profitability is expected to improve, driven by factors like the Indian infrastructure growth story and improved pricing for ferrous metals.

Did you know? In FY22, net profit increased by 160.6% YoY! Not a single company in the sector incurred losses.

• Revenue

The table below shows the revenues of some renowned firms in the metal industry. 

As can be seen, revenue fell in March 2020 due to the pandemic's onset. In 2021, this dip saw a slow reverse due to the pick-up of construction, government initiatives to drive economic growth, and increased demand for capital goods. 2022 saw the steepest increase in revenue; the trend has been upwards ever since.  

• New Orders

India's metal sector is set to witness robust growth in new orders, primarily driven by the country's strong economic growth and increasing demand from various sectors like construction, railways, and capital goods.

The steel industry, in particular, is expected to experience a significant surge in consumption, with forecasts indicating steady expansion in the coming years.

India's focus on infrastructure spending and support from the government through initiatives like the Production Linked Incentive (PLI) scheme further signal positive prospects for the metal sector's new orders shortly.

You may also want to know the Best Metal Stocks to Invest in India

• Research and Development

The Indian metal sector has experienced significant developments, particularly in the metal fabrication market.

Factors driving this growth include increased R&D spending that led to the expansion of metal and manufacturing industries, booming automotive and aerospace sectors, and global companies setting up low-cost plants in India. Modernisation efforts in the steel industry are also underway to enhance energy efficiency.

The Road Ahead

The metal sector's future in India appears promising, supported by the nation's economic growth outlook.

Investments are crucial to meet rising demand and ensure sustained non-inflationary growth. Despite challenges like global inflation and geopolitical crises, positive signs of continued investment and growth persist. 

The government's "Make in India" strategy boosts the manufacturing sector's GDP share, while the "Metal Recycling Policy" reduces scrap imports. Increased infrastructure spending and development fuel steel demand. 

Rising metal prices and strong domestic demand from construction, railways, and capital goods sectors contribute to growth. The outlook remains positive, driven by government infrastructure spending and private sector investments.

Summing up the Metal Sector Analysis

India's metal sector is a vital component of the nation's economic growth, supporting infrastructure development and manufacturing.

Despite challenges, the sector's profitability and revenue have shown promising trends, with new orders expected to surge, especially in the steel industry.

With a promising outlook, the Indian metal industry offers abundant opportunities for investors and businesses looking to capitalise on its bright future.

Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.

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Research Analyst - Aakash Baid