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

Despite an increase in volume, ferrous metal companies suffered from a decline in prices, worsened by higher costs for coking coal, a key input material. 

As per a Nuvama Institutional Equities report, ferrous metal companies should see a volume growth of 5-22% in Q4. This was on the back of strong domestic demand owing to the government’s continued focus on infrastructure and other investment activity, although the gains were partially offset by higher imports in January.

Despite the sales growth, however, Ebitda growth over the preceding third quarter is expected to have dropped significantly by ₹1,100-3,200 per tonne due to pricing and input cost pressure. 

Steel price in India has fallen from an average of about ₹43,500 per tonne in December to less than ₹42,000 per tonne in March. This leads to a decline in average net sales realization in Q4, projected to be down by 3-5% from the preceding three-month period, according to Prabhudas Lilladher.

Encouragingly, coking coal prices have dropped since early March. This would reflect in companies’ profitability but from June onwards, due to the time taken to clear the high-cost inventory.   

Among companies, Nuvama expects Steel Authority of India Ltd to report the lowest decline in profitability owing to increased 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 expected to benefit from additional output from its captive coal mines, but the gains are not sufficient to compensate for the drop in realization. Tata Steel Ltd is expected to gain from lower losses in its European operations, which stood at $178 per tonne in Q3FY24. However, the pressure on domestic operations leads to projections of a decline in Ebitda.    

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

Axis Securities expects Hindalco’s consolidated Ebitda to increase by 9% sequentially to ₹6,615 crore, led by higher Ebitda per tonne at Novelis and slightly lower input energy and coal prices at its Indian upstream aluminium operations.

Going forward, the profitability of non-ferrous metal companies may further improve with increase in London Metal Exchange aluminium prices. Aluminium prices have moved up from $2,180 per tonne on 1 March to over $2,440 per tonne as on 12 April. Every $100 per tonne increase in LME prices helps Nalco improve its earnings by 10% and Hindalco by 5.6%, according to Prabhudas Lilladher.