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Q1FY26 Preview: expect a mixed bag show; d/g COAL to ADD

Q1FY26 performance of the Metals & Mining sector is expected to be a mixed bag. The ferrous segment would see sequential improvement in earnings, primarily driven by better realization and lower coking coal costs. In contrast, performance of non-ferrous players is expected to be weaker, impacted by 6.8%/34.1%/7.1% decline in aluminium/alumina/zinc prices. We downgrade COAL to ADD (lower TP ~10% to Rs425) as near-term volume growth prospects have dampened due to subdued power demand and reduced rake availability

Ferrous – Realization-led Q1 uptick

We expect sequential recovery in earnings for the ferrous space in Q1FY26, mainly led by better realization of ~Rs2,500/t and coking coal cost benefits of USD10-12/t, while iron ore prices were largely stable during the quarter. TATA: We expect TATA to report consol EBITDA of Rs70.9bn in Q1 (up 9.1% QoQ) led by better realization and coking coal cost benefits partially offset by softer volumes, and breakeven EBITDA in the Europe business. JSTL: We expect JSTL to report consolidated EBITDA of Rs71.2bn, up 11.7% QoQ, mainly driven by better realization and lower coking coal cost, which is partially offset by higher iron ore cost in Q1. JSP: We estimate JSP to report EBITDA/t improvement of Rs2,100. SAIL: We expect a solid quarter for SAIL, with EBITDA/t of Rs8,085 on the back of better realization and coking coal cost benefits.

Non-ferrous – Soft Q1 earnings owing to decline in prices

The non-ferrous space is expected to report sequentially lower earnings in Q1, owing to decline of 6.8%/34.1%/7.1% in aluminium/alumina/zinc prices, respectively, while silver prices increased 5.7% in Q1. HNDL: We expect Novelis’s EBITDA at USD442mn with EBITDA/t expected to decline 5.9% QoQ to USD465/t, primarily due to the tariff impact of USD40mn. VEDL: We expect VEDL to report soft Q1FY26 results, with EBITDA of Rs105.5bn driven by a sequentially flat performance in its aluminium segment and weak performance from Zinc India. NACL: We estimate NACL to report standalone EBITDA of Rs17.4bn in Q1 vs Rs27.5bn in Q4 (down 36.7% QoQ), mainly driven by materially lower EBITDA contribution from its alumina segment. COAL: We expect the company to report sequentially lower adj EBITDA (ex-OBR) of Rs104bn (down 7.4% vs Q4) for Q1FY26 owing to lower offtake due to weak power demand as well as decline in e-auction premiums. GRAV: We expect a stable performance, with EBITDA of Rs1,032mn.

Downgrade COAL to ADD; key picks – VEDL, SAIL, TATA, GRAV

We downgrade Coal India to ADD from Buy as the near-term volume growth prospects have dampened, given 1) subdued power demand and 2) faster growth logged by commercial/captive miners. However, medium-term coal demand prospects are intact, and we expect COAL to ramp-up on projects, to be able to produce close to 1 billion tonne by the end of this decade from ~800mt now. With this, we see a balanced risk/reward proposition for the stock and a lack of near-term catalysts limiting the upside potential. Our favored picks are VEDL, SAIL, TATA, and GRAV in the Metals & Mining space.

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