Psat Preview O2FY20E Metals and Mining EBITDA/tonne of steel majors to decline QoQ The domestic steel sector witnessed a challenging Q2FY20. Monthly demand growth has slowed down notably from 6.4% in April 2019 to 1.7% in August 2019. This put downward pressure on steel prices. On an average, domestic hot rolled coil (HRC) prices declined ~9% in Q2FY20 vs, the QIFY20 average. On the raw materials front, while coking coal prices have declined, as steel companies have inventories, the benefit of the same is likely to come from O3FY20E onwards. Subsequently, on account of subdued realisations, we expect the EBITDA/tonne of domestic players to witness a declining trend QoQ. The EBITDA/tonne of Tata Steel (standalone operations) is expected come in at € 10500/tonne (13158/tonne in Q1FY20) while domestic operations of JSW Steel are likely to report an EBITDA/tonne of & 7250/tonne (¥ 9936/tonne in Q1FY20). Going forward, the outcome of US-China trade negotiations holds the key in determining the future trajectory of the global metal sector. Non-ferrous remained muted. Most non-ferrous prices remained subdued during Q2FY20. During the quarter, the average price of zinc was US$2353/tonne, down 7.3% YoY & 14.7% QoQ. Average price of copper was at US$5808/tonne, down 5.1% YoY, 5.0% QoQ. Average aluminium prices were at US$1765/tonne, down 14.1% YoY, 1.6% QoQ. Lead was an exception in metals as it reported average prices at US$2029/tonne, a 7.8% QoQ increase and 3.2% YoY decline in prices. Overall, in Q2FY20, most non-ferrous prices remained subdued due to macroeconomic uncertainties on the back of the ongoing trade tussle along with the slowdown in the overall market. Muted metal prices to impact aggregate operating margin We expect the aggregate topline of coverage companies to decline 16.7% YoY and 10.5% QoQ. On the back of a weakness in metal prices, in general, the aggregate EBITDA margin is expected to decline §50 bps QoQ and 680 bps YoY to 16.0%. The EBITDA/tonne of domestic miners like Coal India is likely to come in at € 265/tonne with NMDC expected to report the same at % 1850/tonne. We expect Novelis (Hindalco’s subsidiary) to clock an EBITDA/tonne of USS425/tonne. 2FY20E: — Rovenue Change (%) EBMDA Change (%) PAT. 2FY20E YoY QoQ G2FY20E YoY G00 O2FY20E Coal nda 187830 -154 247 3240.1 NA 510 25058 Graphite na sg 532 28 55 20-18 1833 Hindalco S913 78 06 1518 337081850 Hindustan Zn 4y20 122 1531924 116 aan SW Staal 1247-3 79 268 451 715 90 Nuc 21950 -124 346 1.0860 128-418 580 Tata Stel 31725 192 22 39727 355 761 8 Total 29,485 710.5 14,313.1 -41.4 and 5823.6 nnn! 3 18000 i 2 81000 Esiooo 0 5 ° ° 8855 § ee BTOA Maria PAT Margin So] DswengSanghev Dewangsanghavi@iciseevetie.comcoal ia Graphite nia Hinstan Zine Hind ASW Stee! oc Tota Stee Fr OZFY20, Coal ni reported oftake of 1225 milin tanre (MT, down 10.8% Yo. Prodicton forthe quer was impacted by heavy rainfall in its mines: Hence, for ‘G2FY2, we expect the tpine to decresse 15.1% YoY ta T 18783 cro. The ensuing FBITOA margin is expected to come in at 1.3% (26.5% OTFY20, 17.8% in 2FY19), We expect the company to clock an EBITDARome of € 26Stonne (compared to & 285 1Reme in 2F¥13} For 02F¥20, we expoctbioded easations to deine 0 onthe back ofthe fal in ‘gaphit lectodes prices for Bot UMP grade wactodes os wll as HP grade wlcvodes. For Q2FY2, we expect Grate na to rpartconscdted capac utilisation of ~75% (23% in 20¥18 and 78% in GIFY20. The topline is expected to come in at € 838 err, ‘down 28% Qo0, 60% YoY. We expect te higher pce needle coke to incrase raw ‘mataal costs. Thus, EBITDA is Uely to come in at € 248.5 crore, enpjing an ETD ‘margin of 26.1% (vs. 689% in O2FYI8, 3.5% in QTY), We expect tho company to reper a PAT of € 1953 core We expect Hindustan Zine to report a muted O2F¥20 perfomance on the back of subdued base moa pices, LME zine pices dung the quater were down 7.3% Yo" whl lead pices ware down 3.2% Yor. We expect zine sals of ~162083 tome (up 0.7% YN, ad sas of ~42148 toon (dwn 14% YoY) and slvr als af ~120481 kg (down 18.0% Yo) Te opine is sly to dacine 12.2% YY, 15.9% O00 to 4182 core ‘while EBITDA is kel to daclng 17.8% Yo, 22.4% QoQ to € 18224 cov. We exgoct EBITDA margins to come in t 45.9% fs. 48.8% in 2FY19 and 48.7% in QIFY2O) For 02F¥20, we expect the oval market slondown anda decine in abmiium pices 'o weigh on the overall gofonmance of the company on a YoY basis, We expect ‘omestic operations to rpot aluminum sales of ~J24506 tonne (vs, 320,000 tonne {1FY20), Copper sales are ely to come in at 10000 tome (vs. 82000 tonne OIF), ‘We expect the top to decline 7.8% YoY, Q6% Ood to € 9981.3 crv. The EBITDA (indaco standalone ~ Uk is ly to doctne to 3.7% Yo to € 115.8 crore. Novels for Q2°Y20's expected to rope FRP shipments of ~825 KT and cock EBITOAtonne of Uussazsiore For O2F¥20, EBMIDAtome slkely to moderate du to daching steal prices. Thus, wo ‘expect standalone oparatans to report an EBMDAtonne of € 725Otome (vs. & "212Gtonne in Q2FYI8 ard Z $834anne in QIFYZO) The sales valume of domestic ‘operations is tialy ta came in at 3.65 man tome (MT. We expect the cansaliated topine to cine 15.3% YoY, 7.9% Qo to & 182447 err. The consolidated EBITDA is [kal te decline 275% Got 2594.5 coe. The carsalated EBITDA marin is kay to ‘come in at 14.8% ls. 72.8% n O2FY19 and 18.8% n O1FY2O) [NMC reported subdued sales volume of 5.9 MT far O2FY20 down 12.4% Yor! on scout of # decline in demand. The topine i expected to come in at & 2135 crore, oven 124% YoY, EBITOA is expected to come in at € 1086 crore, down 13.7% Yo. Subsequent EBNDAIome is expected to come in at ~€ 185Otonne Ws. 2146/ome a1Fv20, For Q1EY20, EBMDAtonne i Key to moderate sequel de to deine in steel ‘ices 000. We expaet standlone operations to report en FBIDAtonn® of @ ontonne (vs, EBITOWOme of © 136@tonne in QIFYZDL Indian operatons {stendlone} are expected t rapot steel slo of 3.2 millon tomo MT} whle Exropesn operation stel sales are kel to come in at 28 WT. Adina, Bhushan Steel is ‘expected to ropat sales volume of 1.0 MT. We expect European operation to report SITOAtome of US -$/tonne. On a consoldatd basis, te toplne i expected to ‘eclne 2.2% Qo0 and 19.2% YoY to € 951725 cro, EBITDA s expected to decline 26.1% Ob, and 55.5% YoY to & 3972.7 cae, Consolatd EBTDA margin are Holy to ora ina 1.3% (vs. 15.05 in O1FY20 and 20.55 O2FY18) ‘unit Q2FY20 Q2FY18 Q1FY20 Ze Tone 162038 162000 167500 ead Tome 42148 49000 50000 Siver Kg Ta0481 161000 15000 ‘Seurces Company EI Det ers ET a2FY20 Q2FYIS YoY QIFY20 dod SdesVol 365 40 38 ty aman 125012126 ao emRG ZT Seuces Company, OY Ont Rear Ser volume Tata Stel Sales Volume; EBITDAtonn. O2FY20 2FVI9. Yor O2FYIS God) Sales Val do 220TH fuope 2523923 ee ec rsiroat bod 10500 HEE 40H 0158208 Eup SO Rt aK hshon 7000 1281 aD THO TH Seve Compoy, 1! Bit Racer Sale vline Jn MT, iar ad hasan EBT ton in Cm,