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Strong quarter, aided by healthy realisation….

For Q1FY22E, we expect domestic steel companies to report a healthy quarter (in terms of EBITDA/tonne), driven by higher steel prices. For the quarter, on a QoQ basis we expect blended realisation of steel companies to be higher in the range of | 6000-7000/tonne (for our coverage universe), wherein the price increase is higher for flats than longs. Subsequently, on a QoQ basis for our coverage universe, we expect EBITDA/tonne of steel companies to increase in the range of ~| 4000-5000/tonne.

For Q1FY22E, EBITDA/tonne of Tata Steel (standalone operations) is expected to come in at | 33000/tonne (| 27775/tonne in Q4FY21, | 5920/tonne in Q1FY21). For Q1FY22E, standalone operations of JSW Steel are likely to post an EBITDA/tonne of | 24000/tonne (| 19756/tonne in Q4FY21, | 5104/tonne in Q1FY21). SAIL’s EBITDA/tonne for Q1FY22E is likely to come in at | 18000/tonne (| 14145/tonne in Q4FY21). Even on the non-ferrous front, on a QoQ basis, zinc, lead and aluminium prices are up 6%, 6% and 15%, respectively, while YoY, zinc, lead and aluminium prices are up 48%, 27% and 60%, respectively. The uptick in base metal prices augurs well for the operating margins of non-ferrous players.

Base metal prices improve both QoQ, YoY…

During Q1FY22, base metal prices improved both QoQ and YoY. During the quarter, average zinc prices on the LME were at US$2916/tonne, up 48% YoY, 6% YoY, while average lead prices were at US$2129/tonne, up 27% YoY, 6% QoQ. Similarly, during the quarter, average aluminum prices on LME were at US$2401/tonne, up 60% YoY, 15% QoQ while average copper prices on the LME were at US$9696/tonne, up 81% YoY, 14% QoQ.

Aggregate EBITDA margins to increase QoQ as well as YoY…

Given the lower base of Q1FY21, on a YoY basis for Q1FY22E the earnings growth of metal and mining companies is expected to be significantly higher. We expect the aggregate topline of coverage companies to increase 94% YoY but decline 3% QoQ to | 151170 crore. The aggregate EBITDA of the coverage universe is expected to increase 506% YoY, 2% QoQ to | 46467 crore.

The aggregate EBITDA margin of coverage universe is likely to come in at 30.7% (up 2100 bps YoY, 170 bps QoQ). The EBITDA/tonne of domestic miners in Coal India is likely to come in at | 355/tonne with NMDC expected to report the same at | 3750/tonne. We expect Novelis (Hindalco’s subsidiary) to clock a blended EBITDA/tonne of US$510/tonne (Novelis numbers inclusive of Aleris numbers).

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