Q3 earnings: Metal players to see muted performance as weak realisations outweigh volumes, cost improvement

The non-ferrous space has performed better mainly due to moderating power costs.

Edelweiss Securities expects a sequential improvement in earnings due to uptick in London Metal Exchange (LME) zinc price, 7 percent QoQ decline in alumina price and better availability of domestic coal leading to lower cost, particularly for aluminum producers.

In Q3FY20, Tata Steel, the largest integrated steel manufacturer, is expected to witness standalone EBITDA/tonne to slip by Rs 900/tonne QoQ owing to lower realisations despite lower coking coal costs, while volumes are expected to grow 12 percent YoY, according to Edelweiss Securities.

The company’s revenue is likely to fall by 13.8 percent YoY to Rs 35,512.4 crore and EBITDA may decline by 38.4 percent YoY to Rs 4141 crore.

The state-run Steel Authority of India’s (SAIL) sales volumes during the quarter may jump by 25.1 percent on year to 4.1 million tonnes while JSW Steel is expected to report 8.7 percent YoY rise in volumes at 4 million tonnes on a standalone basis, as per Phillip Capital.

Meanwhile, ICICI Securities anticipates NMDC to witnessed a 3 percent YoY drop in volumes.

“We estimate EBITDA/t to decline 7 percent QoQ and 32 percent YoY. However, the EBITDA trajectory is again set to improve QoQ driven by price increase as uncertainty around mining auctions start to restocking led price increases,” the brokerage said.

JSW Steel’s net profit for the quarter under review may fall 75.2 percent to Rs 468.5 crore while revenue is expected to decline 14.4 percent to Rs 15,741 crore YoY, according to Phillip Capital.

The brokerage believes lower realisations to be partly offset by fall in cooking coal and iron ore costs.

Hindalco is expected to report 40.4 percent YoY fall in net profit to Rs 147.6 crore in Q3FY20 on a standalone basis. The company’s topline may also take a hit of 12.4 percent to Rs 10,454 crore.

Volume performance in Vedanta continues to disappoint across zinc and oil & gas sectors, which mutes QoQ EBITDA improvement despite improvement in aluminum manufacturing costs.

Overall most of the companies reported marginal improvement in EBITDA aided by higher volume, flattish costs and favourable realisations

Going ahead, brokerages see signs of earnings uptick, particularly for ferrous, as sales volume has improved post-November, respite on domestic and exports realisation and dip in coking coal cost.

In the case of non-ferrous and mining companies, Edelweiss Securities sees signs of recovery on volume uptick and a limited decline in LME prices.