Hindalco, APL Apollo, Coal India Among Axis Securities Top Stock Picks In Metals, Mining Ahead Of Q3 Results

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Axis Securities Report

In Q3 FY25, for steel companies under our coverage, i.e. Tata Steel and Steel Authority of India Ltd., we expect Ebitda to decline YoY due to a drop in steel prices in Q3 FY25 (down 15%/6% YoY/QoQ) partially offset by lower coking coal consumption cost and higher sales volumes.

We expect Tata Steel’s Ebitda to decline on a QoQ basis due to lower HRC prices. For SAIL we expect Ebitda to recover QoQ over a weak base. Higher long steel exposure of SAIL (~35% of SAIL’s volumes versus ~20% of Tata Steel’s) will also aid in QoQ Ebitda gain, as long steel prices traded at an average premium of ~Rs 5,800/tonne over HRC prices in Q3 FY25.

Average steel spreads in India on a consumption basis in Q3 FY25 have dropped by ~24%/1% YoY/QoQ mainly led by a drop in steel prices.

Aluminium companies under our coverage (Hindalco and National Aluminium Company Ltd.) are likely to post another strong YoY performance in the quarter. Both Ebitda and Ebitda margin is expected to expand led by strong Alumina prices (up 107%/30% YoY/QoQ) and London Metal Exchange Aluminium prices (up 17%/8% YoY/QoQ), while sales volumes are expected to remain stable.

On a sequential basis, for Hindalco, we expect some decline in both Ebitda and margin led by lower shipments and scrap spreads at Novelis. NALCO’s Ebitda and margin is likely to expand QoQ led by an upsurge in Alumina prices, which offsets lower Alumina sales volumes.

For structural steel tube companies, i.e. APL Apollo tubes and JTL Industries, we expect a better quarter as compared to weak Q2 FY25. Q2 FY25 was particularly weak for both APL Apollo and JTL Industries due to general elections, monsoon and slow government capex all of which led to de-stocking by traders.

In Q3 FY25, with the pickup in the construction activity, APL reported record sales volumes and we pencil in Ebitda growth on both YoY/QoQ basis. JTL’s sales volume remained weak (excluding Nabha steel) and we model Ebitda drop on a YoY basis and recovery on a QoQ basis on account of re-stocking by traders.

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