According to brokerage ICICI Direct Research, steel companies are expected to record a sequential improvement in EBITDA/tonne for Q4FY23E of between ₹1850 to ₹2250/tonne, mostly due to an increase in steel prices.
In Q4FY23, domestic steel prices increased by over 4-9% QoQ for flat and long products. Since mid-Q1FY23, the domestic steel industry has been facing difficulties, mainly as a result of volume pressure brought on by the introduction of export duties, monsoon-driven cyclical weakness and unpredictable local demand, as well as a steep correction in steel prices.
However, the removal of the export duty at the end of November and the relaxation of Covid-19-related restrictions in China starting in December have bolstered the industry's fundamentals and helped steel prices recover.
According to the brokerage's analysis, Tata Steel Ltd's EBITDA/tonne (standalone operations) is predicted to be ₹13,250/tonne in Q4FY23E (up from ₹11,350/tonne in Q3FY23). JSW Steel Ltd's standalone operations are anticipated to have EBITDA per tonne of ₹10,000 (up from ₹8,141 in Q3FY23E). EBITDA/tonne for Steel Authority Of India Ltd (SAIL) for Q4FY23E is anticipated to be ₹7,250/tonne (compared to ₹5,003/tonne in Q3FY23).
For the quarter, it is anticipated that blended steel realisations will rise on a QoQ basis by about ₹2,000-3,000/tonne. Cost-wise, coking coal prices are anticipated to be sequentially constant for Q4FY23E.
On the volume front, steel firms within the brokerage's coverage universe (apart from JSW Steel) are projected to report flattish volumes on a year-over-year (YoY) basis for the quarter. On the other hand, JSW Steel Ltd will likely report double-digit volume growth for the quarter.
Steel companies will probably report volume growth on a sequential basis that is between 8 and 13% QoQ.
Additionally, the brokerage sees a sequential increase in the steel companies' earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin.
"For Q4FY23E, we expect the aggregate topline of coverage companies to increase 12% QoQ to ₹210,067 crore. Aggregate EBITDA of the coverage universe is expected to increase 24% QoQ to ₹31,336 crore. The aggregate EBITDA margin of the coverage universe is likely to come in at 14.9% (up 140 basis points QoQ)," said the brokerage house in its report.
Earnings Estimates
According to the brokerage, topline is expected to increase 5% QoQ to ₹59,854 crore for Q4FY23E on a consolidated basis but fall 14% YoY. For Q4FY23E, Tata Steel's consolidated EBITDA is anticipated to rise 32% QoQ to ₹5,364 crore. Consolidated EBITDA margins are predicted to be 9.0% in Q4FY23E, up from 7.1% in Q3FY23. It is projected that Q4FY23E's consolidated profit after tax (PAT) will total ₹443 crore.
"For Q4FY23E, we expect JSW Steel's standalone sales volume to come in at 5.6 MT, up 10% YoY, 13% QoQ. For the quarter, we expect JSW Steel to report a consolidated topline of ₹46,340 crore, up 18% QoQ but down 1% YoY. Consolidated EBITDA is likely to come in at ₹6,125 crore, up 35% QoQ. For Q4FY23E, for standalone operations, JSW Steel is likely to report an EBITDA/tonne of ₹10,000/tonne ( ₹8141/tonne in Q3FY23). Consolidated EBITDA margin for Q4FY23E is likely to come in at 13.2% (11.6% in Q3FY23). Ensuing consolidated PAT for Q4FY23E is likely to come in at ₹1,758 crore," said the brokerage.
The brokerage firm anticipates SAIL to report sales of 4.7 million tonnes (MT), up 12% QoQ, for Q4FY23E. The top line is expected to increase 16% QoQ and total ₹29,023 crore. With a 64% QoQ increase, EBITDA is projected to reach ₹3,408 crore. EBITDA/tonne is expected to be ₹7,250/tonne in Q4FY23E as compared to ₹5,003/tonne in Q3FY23. The following PAT is anticipated to total ₹1,281 crore.
"Due to the completion of merger between Jindal Stainless (JSL) and Jindal Stainless (Hisar) (JSHL), JSL's numbers for Q4FY23 are not comparable both QoQ as well as YoY. With respect to operational performance for Q4FY23, combined shipments (with JSHL) are expected to come in at 485,000 tonnes while EBITDA/tonne is likely to come in at ₹1,9750/tonne," said the brokerage.
