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Metal Sector Q4FY22E: Earnings of metal companies will increase! Shares like Hindalco, NMDC, Tata Steel may outperform

Metal prices have risen sharply due to the Russia and Ukraine crisis. Russia and Ukraine are both major producers and exporting countries of the metal.

Metal Sector Stocks: Recently there has been a breakout in the Nifty Metal Index. Talking about the last one year, the index has increased by more than 60 percent and in one month by about 8 percent. Metal prices have risen sharply due to the Russia and Ukraine crisis. Russia and Ukraine are both major producers and exporting countries of the metal. They have a significant share in the global markets. In such a situation, due to the breakdown of supply chain due to war and economic ban on Russia, there has been a strong increase in prices. This increase has been highest during the fourth quarter of FY 2022 i.e. from January to March. Due to the rise in prices in this quarter, the performance of the companies will be affected. However, on quarterly basis, a soft trend can be seen in EBITDA/tonne during Q4FY22E due to higher prices of cooking coal. Brokerage house ICICI Securities has released a report on this.

Most metal prices rise

According to the report, the prices of most of the base metals have shown improvement on a quarterly basis. Base metal prices (excluding lead) have increased both on a quarterly and yearly basis in Q4FY22E. Average zinc price in the quarter stood at $3738/tonne, which is 36 per cent higher on a year-on-year basis and 11 per cent higher on a quarter-on-quarter basis. The average cost of lead stood at $2325/tonne, up 16 per cent on a year-on-year basis and flat on a quarterly basis. At the same time, the average price of aluminum during this quarter was $ 3262 / tonne, which is 56 percent higher on a yearly basis and 18 percent higher on a quarterly basis. Whereas the average price of copper stood at $9997 / tonne, which is 18% higher on a yearly basis and 3 percent higher on a quarterly basis.

Topline growth expected to be better

According to the brokerage house, the average aggregate EBITDA of metal companies for Q4FY22E is expected to increase on a quarterly and year-on-year basis. According to the brokerage, the average topline growth of companies covered by the coverage is expected to be 36 per cent year-on-year and 13 per cent quarterly in the March quarter. It is estimated to be a total of 212696 crores. Whereas EBITDA can grow at 9 percent on a yearly basis and 7 percent on a quarterly basis. This overall is estimated to be 46117 crores.

EBITDA margin of companies

The EBITDA margin of companies can be 21.7 percent which is 546 bps on yearly basis and 127 bps less on quarterly basis. Margins may get impacted due to increase in input cost. Coal India’s EBITDA/tonne is expected to be 475/tonne in the fourth quarter, while NMDC’s is estimated at 2500/tonne.

Tata Steel’s EBITDA/tonne is estimated at 25500/tonne and JSW Steel’s 14000/tonne in the fourth quarter. While SAIL’s EBITDA/tonne is estimated to be 7800/tonne in the fourth quarter.

Sales volume of steel companies high!

Sales volumes of steel companies are expected to remain high. Tata Steel’s sales volume in Q4FY22E is expected to be 5 MT, which is up by 17 per cent on a quarterly basis. JSW Steel’s sales volume is expected to be 4.9 MT, which is 23 per cent higher on a quarterly basis. SAIL’s sales volume is expected to be 4.5 MT, which is 17 per cent higher on a quarterly basis.

Brokerage opinion on shares

(Disclaimer: Stock investment advice is given by the brokerage house. These are not the personal views of digitnews.in. Markets are risky, so take expert opinion before investing.)

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