Finance Update

Q4 Earnings Preview Steel: Steel companies may report fall in Q4 earnings growth

Earnings growth is expected to decline on the back of lower spreads with aggregate PAT expected to be lower by 34% year on year.

Apr 08, 2019, 05.18 PM IST

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Earnings growth is expected to shrink for

steel companies

due to falling prices amid US- China trade concerns with signs of a slowdown in China adding to the weakness. Base metal companies too are likely to see a similar trend in March 2019 earnings, according to a leading brokerage house.

“Earnings growth is expected to decline on the back of lower spreads with aggregate PAT expected to be lower by 34% year on year,” Motilal Oswal said in its latest Metals Sector March 2019 Results Preview. Average EBITDA is expected to decrease by around 14% turning negative after eleven quarters of y-o-y increase, the report added. Metals companies under its coverage include Hindalco, Hindustan Zinc, Jindal Steel & Power, JSW Steel, Nalco, NMDC, SAIL, Tata Steel and Vedanta mong others.

In particular, the brokerage said it expected JSW Steel’s realisations to drop 10% q-o-q due to lower realisations. SAIL’s EBITDA is expected to decline by around 2% q-o-q to Rs 25.2 billion. JSPL’s EBITDA is likely to increase by around !5 q-o-q to Rs 21 billion on higher volumes and improved subsidiary performance while Tata Steel’s EBITDA is also likely to grow by 1% q-o-q to Rs 68.1 billion led by higher steel volumes and offset by lower realisations.

For mining major NMDC, EBITDA is tipped to go down by 17% q-o-q to Rs 19 billion on lower prices. Among base metals, a 2% q-o-q appreciation in USD -Rupee is likely to have a negative impact, the report said. Vedanta’s EBITDA is likely to drop by 2% q-o-q to Rs 55.5 billion, while Hindalco and Nalco’s EBITDA will be impacted by lower prices on the benchmark London Metal Exchange (LME), it added.

Average flat steel prices were down 9% q-o-q to Rs 41,660 per tonne while average long products prices remained unchanged at Rs 37,500 per tonne. Since start of Feb’19, flat prices have recovered by Rs 2000/ tonne, the report said. While domestic steel demand growth was at 5% in Jan-Feb 2019 according to JPC estimates, the reports said sale volumes are expected to recover q-o-q basis, as Q3 witnessed deferment of purchases due to price volatility and on companies looking to reduce their excess inventory. Price of base metals, barring aluminium, were higher on a q-o-q basis while zinc prices increase by 3% to $2694/ tonne and lead was up 4% to 2039/ tonne. While copper was up 1% to 6202/ tonne. Alumina prices declined by 12% to $ 387/ tonne due to increasing supply from China, upcoming facilities at Emirates Global and lifting of sanctions a Rusal. Aluminium prices went down by around %% to $ 1949/ tonne.

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Prakash Poojary
Business Analyst

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