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ƒ Metals & Mining -Better realisations help revenue growth
In Q3FY11E, we expect the topline of the ferrous segment to grow
~3.8% QoQ. Steel volumes are expected to grow marginally.
Demand for flat products is expected to be healthy whereas that for
long products could be muted. Domestic steel prices rebounded in
December, thereby leading to an improvement in realisations by 4-5%
QoQ. Going forward, China is expected to moderate production levels
due to credit tightening measures for the real estate sector and to
maintain the energy conservation target, which could result in supply
side correction. Also, higher raw material prices could lead to a price
hike by domestic manufacturers, thus aiding realisation growth.
ƒ Raw material prices to put pressure on margins
Contract prices of raw materials, namely, iron ore and coking coal in
Q3FY11 were lower by ~9% QoQ and ~7.5% QoQ respectively.
This will lead to improvement in the EBITDA margins sequentially,
however YoY the raw material prices have risen significantly (coking
coal prices up by 64% and iron ore prices up by 93%) leading to
decline in the EBITDA margins on a YoY basis. Going forward,
prices of these raw materials are expected to remain firm on
account of supply side disruption caused by floods in Australia.
Hence, if steel companies are unable to pass on the cost push,
margins would come under pressure.
ƒ Strong base metal prices to drive earnings for non-ferrous
All base metals in Q3FY11 witnessed a sharp rally in prices. Leading
the pack was copper that touched a new high of $9405/tonne (up
~38% YoY) and aluminium, which increased by ~18% YoY
followed by zinc and lead, which were marginally up ~3% and
~6%, respectively. This up move in base metals was primarily
driven by fund inflows into commodities aided by higher liquidity
due to QE2 by the US Fed and also on the back of increased
demand from China. We expect Sterlite to post better margins on
account of higher TC/RC margins in the copper business and
improved profitability in the aluminium business due to better
realisations. However, Hindustan Zinc is expected to face margin
pressure due to an increase in the input cost.
Adhunik We expect the company to post good set of numbers on the back of demand revival
during Q3FY11E. However, realisations are likely to remain flattish. OMML is expected
put up strong performance. We expect iron ore sales volume of ~2.1 lakh tonnes for
this quarter
Godawari
Power & Ispat
The performance for Q3FY11E is expected to improve backed by rise in sponge iron
volumes and improving realisations due to firm steel prices.Pellet sales volume would
also drive the revenues by ~| 24 crore. We expect healthy realisations in sponge iron
segment and power offtake to fuel the growth, going ahead
Graphite India Capacity utilisation is expected to remain steady for Q3FY11E due to improved demand
for graphite electrodes required in blast furnace . Prices are not expected to have
moved significantly during Q3FY11E. The overall performance is likely to remain stable
both YoY and QoQ on all major parameters
HEG Graphite demand is expected to improve due to improved blast furnace production on
the back of firm steel demand globally. We expect the margins to remain almost similar
as compared to Q2 due to stagnant price rise. Going forward we expect margins to
remain under pressure due to rise in needle coke prices.
Hindustan
Zinc
Refined zinc production for Q3FY11E is expected at 1,75,000 tonnes (up ~18% YoY),
while refined lead production is expected at 127,00 tonnes a declined ~13% YoY. Silver
production for Q3FY11E is estimated to remain at 35,000 kg. Despite higher revenues
for Q3FY11E, we expect margins and PAT to fall modestly
SAIL Sales volumes for Q3FY11E are expected to grow by ~8% and ~9% YoY and QoQ,
respectively, to 3.2 MT on the back of higher demand. Due to higher volumes topline is
expected to growth by 8% QoQ and 18% YoY. However EBITDA is expected to decline
by ~18% YoY due to increase in coking coal prices.
Sesa Goa Sales for Q3FY11 is expected to grow by ~18 YoY on the back of higher realisations.
However, we expect volumes at 5.5 million tonne. EBITDA is expected to grow by
~31% YoY whereas EBITDA margin is expected to remain flat at ~55%
Sterlite
Industries
Copper margins are expected to improve in Q3FY11E due to higher by products
realizations and improvement in tc/rc rates. Aluminium production is expected to
remain flat YoY. Power sales is expected at 443 million units which is higher by 13%
YoY, however relizations have declined YoY.
Tata Steel Sales volumes for Q3FY11E is expected to decline by ~2.6% QoQ and ~7.5%
YoY,respectively, to 5.82 MT. EBITDA is expected to go up by ~14% YoY, mainly due to
better performance of Tata Steel Europe. We expect company on a consolidated level
to post an EBITDA /tonne of $128 for Q3FY11E.
Usha Martin We expect revenues to dip for Q3FY11 by ~8% QoQ due to a drop in sales volume of
wire rods. Cost pressures due to rising coke prices will likely dent the EBITDA margins
by ~16% QoQ. We expect the operational performance to be muted, going forward
Visa Steel Sales for Q3FY11E are expected to grow ~17% YoY on the back of higher volumes and
better realisations. We expect sales from pig iron to contribute ~| 18 crore, which
was missing last quarter. We expect robust PAT growth of ~38% YoYand ~63% QoQ
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