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Metals & Mining - Q2FY21 Result Preview - ICICI Securities

Posted On: 2020-10-15 04:02:32

With the opening up of the economy, domestic steel demand improved notably in Q2FY21 compared to Q1FY21. The improvement in demand aided capacity utilisation of domestic steel players. JSW Steel (Indian operations) reported capacity utilisation of 86% in Q2FY21, notably higher than 66% in Q1FY21. Tata Steel (Indian operations) reported capacity utilisation of ~93% in Q2FY21, notably higher than ~61% in Q1FY21. Furthermore, aided by improvement in global steel prices, domestic steel prices increased 5% QoQ to Rs. 38900/tonne. Sequential higher steel prices coupled with improvement in product mix (lower share of exports), we expect realisations of domestic steel companies to increase by ~Rs. 3500/tonne in Q2FY21 compared to Q1FY21. Coking coal prices are also likely to decline by ~US$10-20/tonne sequentially aiding the improvement in EBITDA/tonne on a QoQ basis. The EBITDA/tonne of Tata Steel (standalone operations) is expected to come in at Rs. 12000/tonne (Rs. 5920/tonne in Q1FY21, Rs. 11200/tonne in Q2FY20). Domestic operations of JSW Steel are likely to report an EBITDA/tonne of Rs. 9000/tonne (Rs. 5104/tonne in Q1FY21, Rs. 6472/tonne in Q2FY20).

Aggregate EBITDA to increase both QoQ, YoY...

We expect the aggregate topline of coverage companies to increase 2.9% YoY and 35.0% QoQ to Rs. 92935 crore. The aggregate EBITDA of the coverage universe is expected to increase 23.2% YoY, 120.2% QoQ to Rs. 17766 crore. The aggregate EBITDA margin of the coverage universe is likely to come in at 19.1% (up 310 bps YoY, 740 bps QoQ). EBITDA/tonne of domestic miner Coal India is likely to come in at Rs. 333/tonne with NMDC expected to report EBITDA/tonne at Rs. 1623/tonne. We expect Novelis (Hindalco's subsidiary) to clock a blended EBITDA/tonne of US$375/tonne (Novelis numbers inclusive of Aleris numbers).

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Source: Equity Bulls

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