For Q3FY21, healthy realisations coupled with subdued operating cost (especially coking coal) is expected to push EBITDA/tonne of steel companies to a multi-year high. During the quarter, average domestic Hot Rolled Coil (HRC) prices were at ~Rs. 46700/tonne, up 19% QoQ, 33% YoY. Furthermore, while during Q3FY21, average coking coal prices were down 1% QoQ on account of inventory lag impact, the reduction in coking coal costs for steel companies is expected to be in the range of US$5-10/tonne. However, in Q3FY21, domestic iron ore prices witnessed a sharp uptick, up ~47% QoQ. The upsurge in iron ore prices is likely to limit the EBITDA/tonne uptick for non-integrated players. The EBITDA/tonne of Tata Steel (standalone operations) is expected to come in at Rs. 19000/tonne (Rs. 12861/tonne in Q2FY21, Rs. 10123/tonne in Q2FY20). Domestic operations of JSW Steel are likely to report an EBITDA/tonne of Rs. 13000/tonne (Rs. 10136/tonne in Q2FY21, Rs. 5598/tonne in Q3FY20). Even on the non-ferrous front, on a YoY basis, zinc and aluminium prices are up 10% and 9%, respectively. On a QoQ, zinc and aluminium prices were up 12% each. The uptick in base metal prices augurs well for the operating margins of non-ferrous players.
Aggregate EBITDA margins to increase QoQ, YoY...
We expect the aggregate topline of coverage companies to increase 10.2% YoY, 10.2% QoQ to Rs. 105887 crore. The aggregate EBITDA of the coverage universe is expected to increase 68.5 % YoY, 35.1% QoQ to Rs. 26689 crore. Aggregate EBITDA margin of the coverage universe is likely to come in at 25.2% (up 873 bps YoY, 464 bps QoQ). The EBITDA/tonne of domestic miner Coal India is likely to come in at Rs. 350/tonne with NMDC expected to report the same at Rs. 2700/tonne. We expect Novelis (Hindalco's subsidiary) to clock a blended EBITDA/tonne of US$490/tonne (Novelis numbers inclusive of Aleris numbers).
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Metals_Q3FY21.pdf