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Metals
Potential Result Outperformer: Nalco
Potential Result Underperformer: Tata Steel
In the Dec Q on a QoQ basis, we expect aggregate profit to increase 21%,
EBITDA to grow 18% and sales to grow 1%. We expect profits to grow 15% and
EBITDA to grow 7% on a YoY basis. We expect base metal companies to benefit
from increase in base metal prices during 3Q – Al and Zn LME were up 15%QoQ
during 3Q. In steel companies, we expect domestic realizations to be marginally
higher QoQ, but this will be partially offset by higher raw material costs.
Sterlite – We forecast PAT to grow 7%QoQ. Zinc LME increased 15%QoQ
in Dec Q. Government data suggests Sterlite’s zinc output declined MoM in
Nov 2011. We forecast refined zinc and aluminum volumes to be flat QoQ.
We do not expect Sterlite Energy (600MW) to contribute to profits in Dec Q.
Hindalco – We forecast profits to increase 20%QoQ to Rs5.4bn led by
EBITDA growth of 18%QoQ. In aluminum, we forecast realization to increase
7%QoQ and Al production to be up 7%QoQ due to ramp-back of production
at Hirakud smelter (shut during 2Q due to heavy rains). In Cu, we forecast
volumes to be down 7%QoQ.
Nalco – We expect profits to grow by 25%QoQ to Rs3.5bn as it benefits from
higher aluminum LME (up 15%QoQ). This also leads to higher realizations
on its alumina contract sales (due to linkage to Al LME). We forecast both
alumina and aluminum volumes to remain flat QoQ. We expect aluminum
realizations to grow 10%QoQ.
Tata Steel – We forecast consolidated PAT to decline 28%QoQ to Rs10.4bn
in Dec Q led by lower Corus profits. We expect Corus margins to be
squeezed in 3Q due to lower European steel prices and higher raw material
costs. We expect Corus volumes to decline 5%QoQ due to subdued demand
in Dec Q. For its domestic operations, we forecast EBITDA growth of
6%QoQ and PAT of Rs15.5bn (+3%QoQ) led by 3.5%QoQ increase in
volumes and 2.4% increase in realizations.
SAIL – We expect profits to grow 41%QoQ to Rs15.4bn led by marginal
increase in realizations and decline in input costs. We expect realizations to
increase 1.7%QoQ in 3Q. We expect input costs to decline sequentially due
to lower mix of high cost carry forward coking coal (priced at US$300/t)
during the quarter. We expect volumes to grow 4%QoQ during the quarter.
Jindal Steel and Power – We expect profits (standalone) to increase
14%QoQ to Rs5.4bn. We forecast steel volumes to increase 21%QoQ and
realizations to increase 1%QoQ. We expect flat merchant tariff in JPL. Our
consolidated PAT forecast for JSPL is Rs10.6bn in 3Q.
JSW Steel – We forecast profits (standalone) to grow 6%QoQ to Rs3.6bn in
3Q. We expect realizations to increase 2%QoQ during 3Q, but this is likely to
be largely offset by higher input costs, resulting in broadly flat EBITDA/t.
Coal India: We forecast PAT of Rs29bn, up 71%QoQ. We forecast
dispatches to increase 11%QoQ and realizations to increase 2%QoQ. We
note that historical quarterly financials are not available for prior periods and
hence there is limited information on seasonality of costs and profits on a
quarterly basis.
Sesa Goa – We expect profits to grow 199%QoQ to Rs10.5bn. Given strong
seasonality in iron ore volumes, YoY comparison is more meaningful. We
expect profits to grow 38% on a YoY basis led by a 59%YoY jump in
realizations. We forecast volumes to increase 165%QoQ to 5.3mn tons due
to seasonality. However, on a YoY basis, we expect volumes to decline 22%
due to Karnataka export ban, closure of Orissa operations in Dec and slow
pace of shipments from Goa mines due to transport restrictions.
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