As the broader market and small to midcap stocks enjoy a robust rally, there’s a quiet yet potentially lucrative segment that tends to get overlooked amidst the investing fervour – mining stocks. While technology stocks dominate the spotlight, the mining sector remains hidden in plain sight.
In our pursuit of uncovering investment opportunities, we’ve undertaken the less-explored path to analyse mining stocks that may emerge as noteworthy contenders to watch in 2024.
India ranked as the third-largest energy-consuming nation, experiences a constant upswing in demand for coal due to the country’s heightened need for power and electricity.
Anticipated growth of approximately 10% in the steel demand is attributed to the government’s intensified focus on infrastructure development, seen through increased construction activities such as roads, railways, airports, etc.
Intending to achieve a total crude steel capacity of 300 MTPA and demand/production of 255 MTPA by 2030-31, India aims to become self-reliant in producing speciality steel. This move positions India alongside advanced steel-making nations like Korea and Japan.
The PLI Scheme for Specialty Steel has selected 67 applications from 30 companies, attracting an investment of Rs. 42,500 Crore (US$ 5.1 billion). This initiative targets a downstream capacity addition of 26 million tonnes, with the potential to generate 70,000 jobs.
The Mines and Minerals (Development and Regulation) Amendment Act, 2021 allows captive mine owners (excluding atomic minerals) to sell up to 50% of their annual mineral production in the open market, fostering flexibility and market participation.
India maintains a competitive edge in the cost of production and conversion costs in both steel and alumina, contributing to its global competitiveness.
As of FY22, India reported an estimated 1,319 mines, with 545 dedicated to metallic minerals and 775 to non-metallic minerals, showcasing the diverse and expansive nature of the country’s mining sector.
On an exploration of mining companies, we’re set to evaluate and assign a scorecard to each based on specific parameters.
| Company | CMP (Rs) | MCap (Rs crore) | P/E (x) | RoE (Latest, %) | EV/EBITDA | Sales CAGR (3 yrs, %) | Net Profit Margin |
| COAL INDIA | 369.6 | 2,27,774 | 8.2 | 49.1% | 4.5 | 15.8% | 20.3% |
| HINDUSTAN ZINC | 312.6 | 1,32,084 | 15.7 | 81.3% | 9.1 | 22.5% | 30.8% |
| VEDANTA | 261.7 | 97,261 | 11.3 | 37.0% | 4.6 | 20.4% | 9.9% |
| NMDC | 198.1 | 58,055 | 9.9 | 24.5% | 6.3 | 14.7% | 26.5% |
| GMDC | 416.4 | 13,242 | 13.1 | 20.9% | 8.7 | 36.5% | 34.7% |
| MOIL | 313.3 | 6,374 | 23.7 | 11.2% | 11.1 | 8.9% | 18.1% |
| ASHAPURA MINECHEM | 432.0 | 3,952 | 21.5 | 16.8% | 13.1 | 76.3% | 6.1% |
| 14.8 | 34% | 8.19 | 20% | 21% |
As we navigate through mining companies, we recognize the significance of debt-to-equity ratios, a pivotal factor often overlooked. Let’s broaden our analysis by examining the interest coverage ratio for each company.
| Company | Interest Coverage |
| COAL INDIA | 50 |
| HINDUSTAN ZINC | 17.9 |
| VEDANTA | 3.29 |
| NMDC | 105 |
| GMDC | 616 |
| MOIL | NA |
| ASHAPURA MINECHEM | 3.94 |
Here are the interest coverage ratios of the featured companies. The interest coverage ratio indicates how many times the company’s operating profit covers its interest payments. Typically, a higher ratio is indicative of better financial health, showcasing the company’s ability to generate profits relative to its interest obligations.
| Company | Score out of 5 |
| COAL INDIA | 3 |
| HINDUSTAN ZINC | 3 |
| VEDANTA | 4 |
| NMDC | 3 |
| GMDC | 3 |
| MOIL | 0 |
| ASHAPURA MINECHEM | 1 |
Vedanta appears promising in our analysis. While its debt-to-equity ratio of 2.38 is relatively higher than its peers, the interest coverage ratio of 3.29 is considered reasonable. This makes Vedanta a standout contender to watch in 2024. Despite a correction of over 20% from its January 2023 highs, the question looms: Can Vedanta turn the tables in 2024?
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
Published on: Oct 1, 2023, 9:48 PM IST
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