For metal companies, Q4 likely was a season of some hits, some misses

Among ferrous metal companies, Steel Authority of India Ltd is expected to report the lowest decline in profitability for the financial fourth quarter.
Among ferrous metal companies, Steel Authority of India Ltd is expected to report the lowest decline in profitability for the financial fourth quarter.

Summary

The March quarter delivered a mixed bag for metal companies, but prospects for the ongoing three months seem brighter

Metals companies are expected to report a mixed bag for the three months ended March (Q4FY24), with ferrous metal firms projected to see a drop in profits, and non-ferrous metal firms likely to be on a strong footing. 

Despite increase in volume, ferrous metal firms’ prices declined, worsened by higher costs for key input coking coal. 

Ferrous metal companies should see a volume growth of 5-22% in Q4, as per a Nuvama Institutional Equities report. This was due to strong domestic demand thanks to the government’s focus on infrastructure and other investments, although the gains were partially offset by higher imports in January.

Despite sales growth, however, Ebitda over the third quarter is expected to have fallen by 1,100-3,200 per tonne on pricing and input cost pressure. Steel price has fallen to 42,000 per tonne in March from an average of 43,500 per tonne in December. Average net sales realization in Q4 declined, by a projected 3-5% from the preceding three-month period, Prabhudas Lilladher said.

 

Encouragingly, coking coal prices have fallen since early March. This will reflect in companies’ profitability but from June, after clearing inventory.   

Nuvama sees Steel Authority of India Ltd reporting lowest decline in profitability owing to higher volume in Q4 (up 22% QoQ) and the payments booked for the Railways (factoring in a 1,500 crore one-off gain).

Jindal Steel & Power Ltd is seen benefiting from more output at its coal mines, but the gains are not sufficient to comp-ensate for drop in realization. Tata Steel Ltd is seen gaining via lower losses in its European operations, which was at $178 per tonne in Q3FY24. But, press-ure on domestic ops leads to projections of an Ebitda decline.    

On the other hand, non-ferrous metal companies appear better placed with stable prices, higher volumes, and lower operating cost. Among gainers, Hindalco Industries Ltd is expected to see decent Ebitda growth, aided by US arm Novelis. 

Axis Securities sees Hindalco’s consolidated Ebitda up 9% seq-uentially at 6,615 crore, led by higher Ebitda per tonne at Novelis and lower input energy and coal prices at its Indian upstream aluminium operations.

The profitability of non-ferr-ous metal firms may improve with increase in London Metal Exchange aluminium prices. Aluminium prices have risen to over $2,440 per tonne as on 12 April from $2,180 per tonne on 1 March. Every $100 per tonne rise in LME prices helps Nalco raise earnings by 10% and Hindalco by 5.6%, Prabhudas Lilladher said.

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