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    Sectoral Spotlight: Metals in focus as Q4FY23 earnings season kicks-off; watch out for SAIL, Hindalco

    Synopsis

    Brokerage firm PhillipCapital is optimistic about the sector, estimating a robust Q4FY23 quarter for almost all metal companies. It has also identified stocks in ferrous, non-ferrous space that are expected to perform well.

    Sectoral Spotlight: Metals in focus as Q4FY23 earnings season kicks-off; watch out for SAIL, HindalcoAgencies
    As the earning season kicks-off, the metal sector is likely to remain in focus with expectations of robust performance on the sequential basis by most companies in this space. Investors must also watch out for certain stocks like National Aluminium Company Limited, Steel Authority of India Limited (SAIL), Jindal Stainless Limited and Hindalco Industries Limited, among others which are available at attractive valuations.

    While benchmark indices S&P BSE Sensex and Nifty50 have had a lackluster FY23 amid a series of crises like Russia-Ukraine war, inflation, global slowdown, Adani saga and the US banking crisis, the metal indices on the BSE and NSE have been nothing short of uninspiring. Both the BSE Metal and the Nifty Metal index have given negative returns of over 17% during this period.

    Brokerage firm PhillipCapital is optimistic about the sector, estimating a robust Q4FY23 quarter for almost all metal companies. It has also identified stocks in ferrous, non-ferrous space that are expected to perform well.

    “We like SAIL, Nalco and Jindal Stainless in ferrous space. Hindalco is also available at an attractive valuation. However, it lacks near term triggers,” the PhillipCapital report said. “In Pipes, we continue to like Jindal SAW and Maharashtra Seamless” the report said.

    Triggers
    – Average domestic prices of flat and long steel have improved 5% and 4% sequentially in Q4FY23, the report said adding that most of the companies in this space will likely experience blended realisations increase of Rs 2,000-3,000/tonne with improvement in volumes by 5-12% sequentially as 4Q volumes were seasonally stronger quarter. The raw material cost has increased due to sharp upward movement in iron ore prices (Rs 500-550/tonne jump sequentially) while coking coal prices remained stable (± US$ 10/tonne).

    – Overall, almost all of the major steel companies will experience improvement in performance with expectations of Rs 1,000-3,000/tonne increase over 3Q. Integrated players such as SAIL and TATA Steel (domestic) to see higher improvement versus JSW Steel and Jindal Steel and Power Limited (JSPL).

    – LME aluminium / zinc / lead / copper prices improved 3%/4%/2% and 12% sequentially while volumes were stable to marginally better. INR/US$ remained flat. However, CoP (Cash Operating Profit) is expected to fall between 5-8% on lower thermal coal cost. Implying that almost all of the companies are set to report better performance sequentially.

    – Ferrous: Realisations are expected to increase between Rs 2,000-3,000/tonne (higher end for flats and lower for longs). Volumes to improve between 5-12% partially aided by seasonal strong demand. Integrated companies will experience higher EBITDA/tonne improvement vs nonintegrated players.

    – Non-ferrous: Higher LME and lower CoP to benefit; volumes stable LME aluminium / zinc / lead / copper prices improved 3%/4%/2% and 12% sequentially while volumes were stable to marginally better. “We expect Nalco to witness higher improvement in operating performance vs peers,” the brokerage said.

    – Pipes: “Order books for all the pipe companies will continue to increase or will remain despite better to stable performance sequentially. We expect Welspun Corp to post meaningful improvement in execution from US mills. Jindal, SAW, Maharashtra Seamless and Ratnamani to see stable to marginally better performance,” the report said.

    Q3FY23 Earnings Preview

    Tata Steel (Consolidated)
    • Estimated Q4FY23 revenue at Rs 59,089.20 crore, up 3.5% QoQ and down 14.8% YoY
    • Estimated PAT (Adj.) at Rs 170.70 crore versus (-)2,384.20 crore in Q3FY23 and Rs 10,030.50 in Q4FY22 which is down by 98.3%
    SAIL (Consolidated)
    • Estimated Revenue at Rs 28,925.20 crore, up 15.5% QoQ and down 6% YoY.
    • Estimated PAT at Rs 1,361.40 crore, up 454.1% QoQ and down 43.5% YoY

    JSW Steel (Consolidated)

    • Estimated revenue at Rs 44,875 crore, up 14.7% QoQ and down 4.3% YoY
    • Estimated PAT at Rs 1,672.40 crore, up 241.3% QoQ and down 48.3% YoY

    Jindal Steel - (Consolidated)

    • Estimated revenue at Rs 13,106.40 crore, up 5.3% QoQ and down 8.6% YoY.
    • Estimated PAT at Rs 954.10 crore up 6.4% QoQ and down 50.7% YoY.
    NMDC
    • - Estimated revenue at Rs 5,435 crore, up 46.1% QoQ and down 18.9% YoY
    • - Estimated PAT at Rs 1,407.30 crore, up 58.1% QoQ and down 22.5% YoY
    Hindustan Zinc
    • - Estimated Revenue at Rs 8,530.40 crore, up 8.4% QoQ and down 3 YoY
    • - Estimated PAT at Rs 2,349.60 crore, up 9% QoQ and down 19.8% YoY
    Vedanta
    • - Estimated Revenue at Rs 34,733.50 crore up 1.9% QoQ and down 12.8% YoY
    • - Estimated PAT (before minority) at Rs 47,721 30,920 54.3 72,610 and down 34.3% YoY
    • - Estimated PAT (after Minority) at Rs 39,498 15,610 153.0 61,350 and down 35.6% YoY
    Hindalco - Consolidated
    • Estimated Revenue at Rs 551,31.90 crore, up 3.7% QoQ and down 1.1% YoY
    • Estimated PAT at Rs 1,515.90 crore, up 11.3% QoQ and down 60.7% YoY
    • Nalco
    • Estimated Revenue at Rs 3,688.70 crore, up 12.1% QoQ and down 15% YoY
    • Estimated PAT at Rs 444.40 crore, up 62.3% QoQ and down 56.7% YoY
    Ratnamani Metals
    • Estimated Revenue at Rs 1,111.80 crore, up 5.1 9% QoQ and down 14.1% YoY
    • Estimated PAT at Rs 117.80 crore, down 11% QoQ and up 5.6% YoY
    Welspun Corp (Consolidated)
    • Estimated Revenue at Rs 3,150.70 crore, up 31.2% QoW and up 58.6% YoY
    • Estimated PAT at Rs 116.10 crore, up 395.7% % QoQ and down 55.9% YoY
    Jindal SAW (Consolidated)
    • Estimated Revenue at 5,314.50 crore, up 3% QoQ and up 33.9% YoY
    • Estimated PAT at Rs 164.20 crore, up 14.6% QoQ
    Maharashtra Seamless
    • Estimated Revenue at Rs 1,457.70 crore, up 8.9% QoQ and up 2.7% YoY
    • Estimated PAT at Rs 160.50 crore, down 6.5% QoQ and up 62.5% YoY
    image (13)ET CONTRIBUTORS

    1QFY24 Outlook: Performance to be stable to marginally weak

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