Steel companies’ EBITDA to get hit by lower prices, high coking coal cost in Q4

According to estimates by Nuvama Institutional Equities, non-ferrous companies are likely to outperform ferrous companies in Q4FY24.

Steel prices have fallen by ₹2,000 – ₹2,900 per tonne on a sequential basis during the quarter ended March 2024. Meanwhile, coking coal costs have risen by $10 – $30 per tonne, QoQ, during the period.

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This is likely to impact the operating performance of ferrous companies as their EBITDA per tonne in Q4FY24 is likely to fall by ₹1,100 – ₹3,200 per tonne QoQ. However, this may be partially offset by an increase in volume.

For the non-ferrous companies, earnings before interest, tax, depreciation and amortization (EBITDA) is estimated to remain flat or increase slightly owing to flat or lower cost of production and a marginal rise in LME aluminium price.

Going ahead, Nuvama Equities expects steel companies’ EBITDA per tonne to improve from Q1FY25 due to a fall in coking coal prices, which offset lower steel prices. The base metal prices are also expected to inch up in FY25. Besides, cost of production is likely to reduce, improving profitability. 

It remains selective in stock picking in the metals and mining sector with Jindal Steel & Power (JSPL), Vedanta and Coal India as its preferred picks.

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Here are Q4 results preview of some top metals and mining companies:

Tata Steel

Tata Steel’s standalone EBITDA is expected to decline by 15% QoQ owing to lower realisation, down 3% QoQ and higher coking coal cost. The company’s volume is likely to increase by 5.7% QoQ, resulting in EBITDA per tonne of ₹14,409, down by ₹2,490 QoQ.

Tata Steel Europe’s losses are expected to narrow down to negative EBITDA of $112 per tonne compared with $178 per tonne in Q3FY24, thereby offsetting the decline in EBITDA at the India level, Nuvama said.

JSW Steel is expected to report EBITDA per tonne of ₹7,924, down by ₹3,190 QoQ, hit by lower steel prices, fall in realisation, higher coking coal and iron ore cost, partially offset by an improved volume, which is expected to rose 9% QoQ to 5.68 mt.

Jindal Steel & Power

Jindal Steel & Power (JSPL) is expected to benefit from its captive coal mine, resulting in EBITDA per tonne of ₹13,016. The brokerage firm observes a rise in volumes across companies in the range of 5–22% QoQ amid seasonally better domestic demand. 

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SAIL 

Nuvama expects SAIL to report the lowest decline in profitability owing to 22% QoQ increase in volume, further supported by the payments booked for railways, resulting in positive PBT.

Vedanta

Vedanta’s EBITDA is expected to rise 2% QoQ driven by higher volume in zinc, offset marginally by prices and lower cost of production in aluminium. Aluminium is expected to report an EBITDA uptick of 2.5% QoQ.

Coal India

Coal India is likely to report EBITDA of ₹13,670, up 58% YoY, primarily due to lower employee cost. Volume is expected to rise 8% YoY to 202 mt and may offset lower e-auction prices. This in addition to lower employee cost is expected to help Coal India to record EBITDA per tonne of ₹678, up 47% YoY.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 04 Apr 2024, 03:01 PM IST