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Axis Securities Report
In Q2 FY25, all the companies under our coverage may witness sequential margin contraction as we model flat sales volumes QoQ, while metal prices witnessed correction (average Steel HRC down 8%/6% YoY/QoQ and average London Metal Exchange Aluminium declined by 6% QoQ but stood up by 10% YoY in Q2 FY25).
On a YoY basis as well, all companies except Aluminium names could report margin contraction. Hindalco and National Aluminium Company Ltd. both are expected to report margin expansion on a YoY basis, with Nalco screens out amongst the pack as our top earnings play led by strong Alumina prices.
For steel companies under our coverage, i.e. Tata Steel and Steel Authority of India Ltd., the drop in sales realisation on account of the drop in steel prices in Q2 FY24 (down 8%/6% YoY/QoQ to Rs 51,802/tonne) will lead to margin contraction partially offset by lower coking coal consumption cost.
Average steel spreads in India on a consumption basis in Q2 FY25 have dropped by ~17% YoY and ~3% QoQ mainly led by a drop in steel prices.
For aluminium companies also, we expect Ebitda margin to contract on a QoQ basis. Mainly led by lower LME Aluminium prices (average prices stood up by 10% YoY but down 6% QoQ to $2,385/t) while energy costs are expected to remain flat QoQ.
On a YoY basis, the Ebitda margins are expected to show robust growth led by higher metal prices and lower energy input costs, while sales volumes marginally improve/stay flat YoY.
For structural steel tube companies, i.e. APL Apollo tubes and JTL Industries, while the sales volumes made new record highs, we expect Ebitda/tonne to decline both YoY/QoQ for both the companies as we expect inventory build-up led by traders destocking amidst falling steel prices in Q2 FY25.
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