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Metals & Mining
Higher realisations aids topline
In Q4FY11E, globally steel prices have witnessed a jump of ~15%
QoQ mainly driven by rising cost of raw material prices. Steel demand
in Q4FY11 has been improving on the back of higher demand from
end-user industries. Overall, we expect steel companies to register
flattish volume growth. However, due to higher realisations
companies are expected to post healthy topline growth.
Operating margins impacted by high cost of raw material prices
Contract prices of raw materials viz. iron ore and coking coal in
Q4FY11 were higher by ~6% and ~7% QoQ whereas they rose
~121% and 74% YoY, respectively. Due to a sharp rise in prices of
key raw materials, the operating profit of steel companies would be
largely impacted. Due to the recent floods in Australia, the supply of
coking coal has been tight, thereby leading to a sharp spike in prices
of coking coal from~$220/tonne to ~$330/tonne. However, going
forward, prices of these raw materials are expected to remain firm
on account of demand and supply side bottlenecks. Hence, we
expect steel prices to remain firm in the near term on the back of
cost pressure.
Strong base metals prices to drive earnings for non ferrous
All base metals in Q4FY11 witnessed a jump in prices driven by
strong demand globally. Leading the pack was copper, which
touched a new high of $10053/tonne (up ~33% YoY and 12% QoQ)
followed by lead (up ~45% YoY and 11% QoQ) whereas zinc and
aluminium registered a decline of ~30% YoY and ~10% YoY,
respectively (however, sequentially they rose ~5% and ~9%). We
expect Sterlite Industries to post a good set of numbers driven by
the strong performance of its subsidiary Hindustan Zinc.
Company specific view
Company Remarks
Adhunik We expect it to post growth of 13% YoY on the back of higher sales volumes and better
realisations during Q4FY11E. We expect OMML to post iron ore volumes of ~2.9 lakh
tonnes on the back of increasing demand. OMML’s robust performance will lead to 36%
EBITDA YoY, thus leading to an improvement in PAT by 25%
Godawari
Power & Ispat
The performance for Q4FY11E is expected to improve due to higher realisations. Overall
volumes are expected to grow by 7% QoQ to ~94200 tonne. The power segment is
likely to contribute ~| 9 crore to the total topline. The OPM is expected to improve
marginally by 100 bps from ~22% to ~23%
Graphite India Capacity utilisation is expected to remain steady in Q4FY11E due to improved demand
for graphite electrodes required in blast furnace. Realisation for the company has
improved to $3850/tonne. Due to an increase in manufacturing costs, EBITDA will fall
by 23% YoY
HEG We expect the company to post marginal volume growth of 2% YoY and utilisation rate
to improve to ~92% in Q4FY11E. Realisations are expected to remain stable QoQ.
Going forward, we expect margins of the company to remain under pressure due to
rising raw material prices
Hindustan
Zinc
Refined zinc production for Q4FY11E is expected at ~186000 tonnes (up ~18% YoY
and 6% QoQ) while refined lead production is expected at ~15,100 tonne, up ~22%
QoQ with a decline of ~18% YoY. Silver production for Q4FY11E is estimated to remain
at 35,000 kg
SAIL Sales volumes for Q4FY11E are expected to remain flat at 3.3 million tonne. However,
we expect the profitability of the company to be impacted on account of higher coking
coal prices. Hence, PAT for Q4FY11E is expected to register a decline ~17% YoY
Sesa Goa Sales for Q4FY11 are expected to grow ~6% QoQ and decline ~22% YoY. The decline
in volumes was mainly due to closure of its Orissa mine coupled with a ban on exports
from Karnataka. However, the improvement in topline is mainly due to better
realisations. This has improved to $92 compared to $67 in Q4FY10
Sterlite
Industries
The topline will grow ~18% YoY on the back of strong growth in volumes across all
verticals. EBITDA is expected to post marginal growth of ~6% YoY on the back of rising
input cost. The PAT of the company is expected to decline due to increase in the tax
rate, which has increased to~22% as against ~18% last year
Tata Steel Consolidated sales volumes for Q4FY11E are expected to grow ~5% QoQ against a
decline of ~8% YoY to 6.12 MT. The EBITDA of the company is expected to be lower
due to poor performance by Tata Steel Europe. However, we expect the PAT to improve
due to one-time gain on sale of Teesside asset
Usha Martin We expect Q4FY11 revenues to rise ~21% YoY on improved realisations. Cost
pressures like rising coke prices and rise in power and other expenses will lead to a
flattish performance at EBITDA level. PAT was dented due to higher depreciation and
interest cost and it is expected to decline ~40% YoY
Visa Steel We expect sales volumes for Q4FY11E to grow ~28% QoQ. However, volumes are
expected to dip ~7% YoY to ~107677 tonnes. Also, higher prices of iron ore and
coking coal would impact the EBITDA. Hence, it is likely to register a decline of ~44%
YoY
Source: Company, ICICIdirect.com Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Metals & Mining
Higher realisations aids topline
In Q4FY11E, globally steel prices have witnessed a jump of ~15%
QoQ mainly driven by rising cost of raw material prices. Steel demand
in Q4FY11 has been improving on the back of higher demand from
end-user industries. Overall, we expect steel companies to register
flattish volume growth. However, due to higher realisations
companies are expected to post healthy topline growth.
Operating margins impacted by high cost of raw material prices
Contract prices of raw materials viz. iron ore and coking coal in
Q4FY11 were higher by ~6% and ~7% QoQ whereas they rose
~121% and 74% YoY, respectively. Due to a sharp rise in prices of
key raw materials, the operating profit of steel companies would be
largely impacted. Due to the recent floods in Australia, the supply of
coking coal has been tight, thereby leading to a sharp spike in prices
of coking coal from~$220/tonne to ~$330/tonne. However, going
forward, prices of these raw materials are expected to remain firm
on account of demand and supply side bottlenecks. Hence, we
expect steel prices to remain firm in the near term on the back of
cost pressure.
Strong base metals prices to drive earnings for non ferrous
All base metals in Q4FY11 witnessed a jump in prices driven by
strong demand globally. Leading the pack was copper, which
touched a new high of $10053/tonne (up ~33% YoY and 12% QoQ)
followed by lead (up ~45% YoY and 11% QoQ) whereas zinc and
aluminium registered a decline of ~30% YoY and ~10% YoY,
respectively (however, sequentially they rose ~5% and ~9%). We
expect Sterlite Industries to post a good set of numbers driven by
the strong performance of its subsidiary Hindustan Zinc.
Company specific view
Company Remarks
Adhunik We expect it to post growth of 13% YoY on the back of higher sales volumes and better
realisations during Q4FY11E. We expect OMML to post iron ore volumes of ~2.9 lakh
tonnes on the back of increasing demand. OMML’s robust performance will lead to 36%
EBITDA YoY, thus leading to an improvement in PAT by 25%
Godawari
Power & Ispat
The performance for Q4FY11E is expected to improve due to higher realisations. Overall
volumes are expected to grow by 7% QoQ to ~94200 tonne. The power segment is
likely to contribute ~| 9 crore to the total topline. The OPM is expected to improve
marginally by 100 bps from ~22% to ~23%
Graphite India Capacity utilisation is expected to remain steady in Q4FY11E due to improved demand
for graphite electrodes required in blast furnace. Realisation for the company has
improved to $3850/tonne. Due to an increase in manufacturing costs, EBITDA will fall
by 23% YoY
HEG We expect the company to post marginal volume growth of 2% YoY and utilisation rate
to improve to ~92% in Q4FY11E. Realisations are expected to remain stable QoQ.
Going forward, we expect margins of the company to remain under pressure due to
rising raw material prices
Hindustan
Zinc
Refined zinc production for Q4FY11E is expected at ~186000 tonnes (up ~18% YoY
and 6% QoQ) while refined lead production is expected at ~15,100 tonne, up ~22%
QoQ with a decline of ~18% YoY. Silver production for Q4FY11E is estimated to remain
at 35,000 kg
SAIL Sales volumes for Q4FY11E are expected to remain flat at 3.3 million tonne. However,
we expect the profitability of the company to be impacted on account of higher coking
coal prices. Hence, PAT for Q4FY11E is expected to register a decline ~17% YoY
Sesa Goa Sales for Q4FY11 are expected to grow ~6% QoQ and decline ~22% YoY. The decline
in volumes was mainly due to closure of its Orissa mine coupled with a ban on exports
from Karnataka. However, the improvement in topline is mainly due to better
realisations. This has improved to $92 compared to $67 in Q4FY10
Sterlite
Industries
The topline will grow ~18% YoY on the back of strong growth in volumes across all
verticals. EBITDA is expected to post marginal growth of ~6% YoY on the back of rising
input cost. The PAT of the company is expected to decline due to increase in the tax
rate, which has increased to~22% as against ~18% last year
Tata Steel Consolidated sales volumes for Q4FY11E are expected to grow ~5% QoQ against a
decline of ~8% YoY to 6.12 MT. The EBITDA of the company is expected to be lower
due to poor performance by Tata Steel Europe. However, we expect the PAT to improve
due to one-time gain on sale of Teesside asset
Usha Martin We expect Q4FY11 revenues to rise ~21% YoY on improved realisations. Cost
pressures like rising coke prices and rise in power and other expenses will lead to a
flattish performance at EBITDA level. PAT was dented due to higher depreciation and
interest cost and it is expected to decline ~40% YoY
Visa Steel We expect sales volumes for Q4FY11E to grow ~28% QoQ. However, volumes are
expected to dip ~7% YoY to ~107677 tonnes. Also, higher prices of iron ore and
coking coal would impact the EBITDA. Hence, it is likely to register a decline of ~44%
YoY
Source: Company, ICICIdirect.com Research
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