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ICICI Securities Report
Q2 FY24 is likely to see lower cost offsetting the impact of softer ferrous/London Metal Exchange prices. Besides, volume will likely stay upbeat, especially for ferrous companies. Key points:
Shipments of all the major ferrous players likely to be up YoY, tracking steel consumption growth.
Coking coal cost likely to be lower by $40–50/tonne.
Realisation for ferrous companies likely to be lower by Rs 2,500–3,000/tonne.
Lower thermal cost due to better linkage rationalisation and e-auction price shall aid profitability for non-ferrous players.
Going ahead, commentaries from the companies will be critical as the price-cost effect outlook (particularly for ferrous) is likely to take centre stage.
Our top picks in the space are:
Jindal Steel and Power Ltd. (target price: Rs 810; 'Buy');
Jindal Stainless Ltd. (target price: Rs 610; 'Buy'); and
Shyam Metalics and Energy Ltd. (target price: Rs 690; 'Buy').
Stocks in focus
We see five stocks being in focus in Q2 FY24:
Steel Authority of India Ltd. - Likely to see the maximum improvement in Ebitda/tonne compared to peers, owing to higher price-cost benefit and volume growth.
Hindalco Industries Ltd. - Sales volume at Novelis likely to improve by 5% QoQ as supplies pick up; Ebitda/tonne is likely to improve further as a result of higher recycling.
APL Apollo Tubes Ltd. - Likely to report record performance on the back of best-ever sales volume and ramp up of value added capacity at Raipur.
Tata Steel Ltd. - Re-lining expenses at Ijmuiden and neutral price-cost impact at Tata Steel Europe might plunge, thickening Tata Steel Europe's Ebitda level loss to $150/tonne (last three quarters at $90–95/tonne loss).
Shyam Metalics - Expect stable Ebitda margin at 11.1% despite lower realisation/volume on a QoQ-basis as longs prices in secondary segment fared worse than the primary market.
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