Metals & Mining Sector Update : Q4FY25 preview - Expect a mixed quarterly performance by Emkay Global Financial Services Ltd
We expect the Metals & Mining sector to see a mixed performance in Q4FY25. The ferrous segment is likely to see sequential improvement in earnings, primarily driven by lower coking coal costs, project ramp-ups, and sequentially stable realizations. On the other hand, the non-ferrous segment is expected to be flat-to-slightly weaker, impacted by a 23%/7% drop in alumina/zinc prices offset by a modest 2% QoQ increase in aluminium prices. We update our commodity price forecasts, key being lowering of aluminium price assumption to USD2,600/t from USD2,700/t for FY27E. We think near-term risk to Metals & Mining stocks is to the downside, though the current macro is too clouded to make a change in our sector stance.
Ferrous – Sequential recovery led by lower coking coal prices
We expect sequential recovery in earnings for the ferrous space in Q4FY25, mainly led by coking coal cost benefits, project ramp-ups, slightly better flat-product realizations (up 1.5%), and partially offset by a 2.1% decline in long prices. TATA: We expect TATA to report consol EBITDA of Rs66.1bn in Q4 (up 10.4% QoQ) led by modest increase in realization and coking coal benefit, offset by higher losses at UK operations. JSTL: We expect JSTL to report consolidated EBITDA of Rs66.5bn, up 19.1% QoQ, mainly driven by project ramp-up and lower coking coal cost. JSP: We estimate JSP to report EBITDA/t improvement by Rs932, while that for SAIL by Rs721/t, in Q4.
Non-ferrous – Mixed quarterly performance
The non-ferrous space is expected to report sequentially flat-to-lower earnings in Q4, owing to -23%/-7% lower alumina/zinc prices, resp, while aluminium prices increased a modest 2% in Q4. HNDL: We expect the Novelis pain to ease in Q4, on improved shipments and better scrap spreads vs Q3. VEDL: We expect VED to report soft Q4FY25 results, with EBITDA of Rs111.2bn driven by sequentially flat performance in its Aluminium and Zinc India businesses. NACL: We estimate Nalco to report standalone EBITDA of Rs21.8bn in Q4 vs Rs23.3bn in Q3 (down 6.6% QoQ), mainly driven by slightly lower EBITDA contribution from its alumina segment. COAL: We expect the company to report sequentially lower Q4FY25 adj EBITDA (ex-OBR) of Rs99bn (down 4.6% vs Q3) owing to higher employee cost, which tends to rise in Q4 every year. In addition, eauction premia could show moderation as global thermal coal prices have corrected.
Earnings revisions negative
We lower our aluminium price forecasts to USD2,525/2,600/t from USD2,600/2,700/t for FY26/27. Spot prices need to be higher than our estimate for a reasonable amount of time during the year, to make an average of USD2,600/t for FY26. We believe this has become increasingly less likely given the uncertain macro, and hence warrants an early revision (lower). As a result, our EBITDA estimates decline to the tune of 4-11% for nonferrous equities. Particularly for Hindalco, we retain SELL with existing TP (which indicates upside from current price despite our SELL rating) as we await clarity on policy.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
