The announcement of a nationwide lockdown in lieu of Covid-19 adversely impacted domestic steel demand in Q1FY20. During Q1FY20, domestic steel demand fell ~57% YoY. On account of muted demand, majority of steel companies had to operate at sub-optimal levels in April and May, 2020. Domestic steel companies increased their focus towards exports to compensate for muted domestic demand. Majority of steel companies operated at ~55-60% capacity utilisation levels in Q1FY20 while blended realisations declined by ~Rs. 3500-4000/tonne depending on the export and product mix. The EBITDA/tonne of Tata Steel (standalone operations) is expected to come in at Rs. 7500/tonne (Rs. 12531/tonne in Q4FY20 and Rs. 13158/tonne in Q1FY20). Domestic operations of JSW Steel are likely to report an EBITDA/tonne of Rs. 5250/tonne (Rs. 8703/tonne in Q4FY20, Rs. 9936/tonne in Q1FY20).
Aggregate EBITDA margins to nosedive...
On account of Covid-19 related shutdowns and muted domestic demand, we expect Q1FY21E to be a washout quarter for the metal sector. We expect the aggregate topline of coverage companies to decline 30.8% YoY and 29.0% QoQ to Rs. 69626 crore. The aggregate EBITDA of the coverage universe is expected to decline 62.0% YoY and 57.4% QoQ to Rs. 8194 crore. The aggregate EBITDA margin of the coverage universe is likely to come in at 11.8% (down 970 bps YoY, 780 bps QoQ). The EBITDA/tonne of Coal India is likely to come in at Rs. 174/tonne with NMDC expected to report the same at Rs. 1100/tonne. We expect Novelis (Hindalco's subsidiary) to clock an EBITDA/tonne of US$325/tonne.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Metals_Q1FY21.pdf