Top Conviction Ideas: Metals & Mining by Axis Securities Ltd
Q1FY26 Review – Mixed Bag Amid Macro Headwinds
The Q1FY26 performance of the Metals & Mining sector reflected a mixed trend, influenced by both global macroeconomic uncertainties and supportive domestic factors. Aluminium players such as Hindalco and NALCO delivered resilient results despite pricing headwinds. Hindalco’s Indian operations stood strong with consolidated EBITDA of Rs 8,075 Cr, comfortably ahead of estimates, showcasing the strength of its integrated model. NALCO reported EBITDA growth of 60% YoY, led by higher Alumina sales volumes, though QoQ weakness was expected given softer Alumina and Aluminium prices. On the steel front, Tata Steel’s results stood out with India EBITDA/t at Rs 15,240, 17% above our estimates, while European operations turned profitable after 10 quarters, demonstrating the effectiveness of its cost transformation efforts. However, SAIL’s performance lagged due to a one-time inventory valuation impact, and Coal India faced a softer offtake in Q1FY26 owing to weaker demand during the early monsoon. Structural steel tube players such as APL Apollo tubes and JTL industries delivered muted results in a seasonally weak quarter and pick up in growth is expected from H2FY26. These divergences highlight the nuanced sector dynamics where leadership in cost efficiencies, operational resilience, and exposure to high-margin segments is making a material difference.
Outlook – Structural Strength in Aluminium; Near-term Challenges in Steel
Looking ahead, we believe Aluminium companies are well-placed to benefit from supply-side discipline and steady demand in the US, Europe, and China. LME Aluminium prices, which averaged $2,444/t in Q1FY26, have already rebounded to $2,600/t in Q2FY26, supported by limited supply additions outside China and global deficits expected in CY25. Hindalco remains best placed given its strong Indian operations, while headwinds at Novelis likely to taper down in future quarters. NALCO’s volume strength and strategic position continue to drive performance.
Steel, on the other hand, faces near-term price pressure with domestic HRC trading at an 8% discount to landed Chinese prices. However, post-safeguard duty imposition, import volumes have fallen sharply while exports have grown, creating a buffer for domestic prices to firm up. Raw material softness in coking coal and iron ore further supports margins over the medium term. With infrastructure spending, housing recovery, and manufacturing growth acting as structural demand drivers, domestic steel demand trajectory will continue to remain resilient.
Key Monitorables – Geopolitics, Tariffs, and Policy Support
Going forward, global macro developments will play a pivotal role in shaping the earnings outlook for the Metals & Mining sector. Key factors to watch include the trajectory of US Fed rate cuts, any additional stimulus measures from China, the potential extension of safeguard duty on steel imports, and evolving trade flows post the imposition of tariffs in the US. In Aluminium, global supply tightness and China’s capacity cap is expected to support prices, while in Steel, domestic demand recovery postmonsoon and festive demand season will be critical triggers. Companies with expansion plans having strong execution capability, operational efficiency, scale advantages, and diversified portfolios remain best positioned to capture upside once macro tailwinds strengthen.
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