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Strong quarter, aided by healthy realisation….

For Q4FY21E, we expect domestic steel companies to report a robust quarter, driven by higher steel prices. For the quarter, on a sequential basis we expect blended realisation of steel companies to be higher in the range of | 5000-7000/tonne (for our coverage universe). Subsequently, on a QoQ basis, for our coverage universe, we expect EBITDA/tonne of steel companies to increase in the range of | 3000-6000/tonne. For Q4FY21, EBITDA/tonne of Tata Steel (standalone operations) is expected to come in at | 26000/tonne (| 20070/tonne in Q3FY21, | 12531/tonne in Q4FY20). For Q4FY21, domestic operations of JSW Steel are likely to report an EBITDA/tonne of | 19000/tonne (| 14444/tonne in Q3FY21, | 8703/tonne in Q4FY20). SAIL’s EBITDA/tonne for Q4FY21 is likely to come in at | 15000/tonne (| 12235/tonne in Q3FY21). Even on the non-ferrous front, on a QoQ basis, zinc, lead and aluminium prices are up 5%, 6% and 9%, respectively, while on a YoY basis, zinc, lead and aluminium prices are up 29%, 9% and 24%, respectively. The uptick in base metal prices augurs well for the operating margins of non-ferrous players.

Base metal prices improve both QoQ, YoY…

In Q4FY21, base metal prices improved both QoQ as well as YoY. During the quarter, average zinc prices on the LME were at US$2749/tonne, up 29% YoY & 5% YoY while average lead prices were at US$2011/tonne, up 9% YoY, 6% QoQ. Similarly, during the quarter, average aluminium prices on LME were at US$2096/tonne, up 24% YoY, 9% QoQ while average copper prices on the LME were at US$8501/tonne, up 51% YoY, 18% QoQ.

Aggregate EBITDA margins to increase QoQ as well as YoY…

We expect the aggregate topline of coverage companies to increase 30% YoY and 15% QoQ to | 155177 crore. The aggregate EBITDA of the coverage universe is expected to increase 70% YoY and 30% QoQ to | 44611 crore. The aggregate EBITDA margin of the coverage universe is likely to come in at 28.7% (up 780 bps YoY, 340 bps QoQ). The EBITDA/tonne of domestic miner Coal India is likely to come in at | 350/tonne with NMDC expected to report the same at | 3600/tonne. We expect Novelis (Hindalco’s subsidiary) to clock a blended EBITDA/tonne of US$500/tonne (Novelis numbers inclusive of Aleris numbers).

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