Metals, Mining Q2 Results Preview - Strong Quarter Due To Lower Raw Material, Weak Base: Prabhudas Lilladher

Prabhudas Lilladher Report

We expect our metals coverage universe to report healthy performance in Q2 FY24, owing to lower raw material and energy prices, continued strong demand momentum despite seasonally weak monsoon quarter and weak base of Q2 FY23.

We expect overall Ebitda/profit after tax growth of ~48%/ 179% YoY (2%/ -5% QoQ) for our coverage universe (excluding Jindal Stainless Ltd.).

Key monitorables would be rising coking coal prices, progress on capex, outlook on demand from China and developed countries.

Top Picks:

Hindalco Industries Ltd.

We believe Hindalco is well placed amongst the space as-

1. Novelis is expected to witness gradual improvement in per ton Ebitda over next few quarters, led by resilient developed economies and gradual improvement in consumer demand from China;

2. fall in thermal coal prices and opening of captive coal mines to benefit India business; and

3. rising focus on high margin value added products.

Maintain 'Buy with target price of Rs 557.

Jindal Steel and Power Ltd.

We remain positive on JSPL given-

1. strong 16% compound annual growth rate in steel volumes over FY23-26E led by ongoing Angul capacity expansion,

2. commissioning of 5.5 million tonnes per annum hot strip mill to improve product mix, and

3. its margin improvement projects such as 12 mtpa pellet plant, 18 mtpa slurry pipeline and four coal blocks to drive margins.

Maintain 'Buy' with target price of 812.

Tata Steel Ltd.

Tata Steel’s Q2 FY24E performance is expected to be weakest among peers due to further drag on Tata Steel Europe Ebitda losses led by lower net sales realisation, poor volumes and Tata Steel UK operating losses. We remain positive given-

1. strong double digit volume growth potential for TSI post commissioning of 5 mtpa KPO II by Q1 FY25,

2. better clarity on Tata Steel UK with £500 million grant from the UK government for 3 mtpa electric arc furnace and reduction of losses from Tata Steel UK, and

3. focused deleveraging to keep balance sheet healthy.

Maintain 'Buy' with target price of Rs 144.

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