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Metals
Potential result outperformers: Coal India, Tata
Potential result underperformers: Sesa, SAIL
In the June Q on a QoQ basis, we expect aggregate profit to decline 9%; EBITDA
to decline 1% and sales to decline 8%. On a YoY basis, we expect profits to grow
23% and EBITDA to grow 24% on YoY basis. In base metal companies the
impact of price movement should be mixed as Al LME was up 4%QoQ, while Zn
LME was down 6%QoQ in June Q. However, we expect base metal cos (esp. Al)
cos to face higher costs due to coal price revision by Coal India in March. In
Steels, average flat product prices were lower and average long product prices
were higher on a QoQ basis in the domestic market. We expect domestic steel
margins to decline QoQ due to partial impact of higher coking coal costs.
Sterlite – We forecast PAT to decline 28%QoQ. Zinc LME was down
6%QoQ in June Q. We forecast refined zinc volumes to decline 4%QoQ and
aluminum volumes to be up 1%QoQ. We estimate Sterlite Energy to
contribute Rs89.2bn to 1QFY12 EBITDA.
Hindalco – We forecast profits to decline 4%QoQ to Rs6.7bn despite
7%QoQ EBITDA growth owing to higher tax rate (4Q tax rate was below
normal). In aluminum, we forecast marginally lower volumes. In Cu, we
forecast volumes to be down 5%QoQ due to maintenance shut down. We
expect impact of higher coal costs to kick in this quarter.
Nalco – We expect profits to grow by 10%QoQ to Rs3.3bn due to higher
aluminum LME (up 6%QoQ) though this is partially negated by higher coal
costs. This also leads to higher realizations on its alumina contract sales
(due to linkage to Al LME). We forecast alumina volumes to decline 3%QoQ
and aluminum volumes to decline 1%QoQ. We expect aluminum realizations
to grow 3%QoQ.
Tata Steel – We forecast consol. PAT to grow 31%QoQ to Rs17.8bn in June
Q led by higher Corus profits. We expect Corus margins to improve QoQ due
to full impact of higher prices and limited impact of higher coking coal costs
due to carry over inventory at lower costs. We forecast Corus volumes to
decline 10%QoQ in June Q . For domestic operations we forecast EBITDA
decline of 8% and PAT of Rs15.6bn (-8%QoQ) led by 7% decline in volumes
and partial impact of higher coking coal costs. The impact of higher coal
costs is partly offset by lower wage costs due to absence of non recurring
wage provision reported in 4Q. In addition, Tata Steel will also report one
time gains related to sale of stake in Riversdale and Tata Refractories,
which is not included in our recurring PAT estimates
SAIL – We expect profits to decline 16%QoQ to Rs12.1bn led by flat
realizations and higher costs. We expect realizations to decline 1%QoQ in
June Q. We expect input costs to increase QoQ due to partial impact of
higher coking coal contract prices (+US$105/t QoQ). We expect volumes to
decline 8%QoQ during the quarter.
Jindal Steel and Power – We expect consolidated PAT to increase
14%QoQ to Rs11.4bn in 1Q. We forecast steel volumes to decline 5%QoQ
and realizations to increase 3%QoQ. We expect flat merchant tariff in JPL.
Our standalone PAT forecast for JSPL is Rs5.5bn, down 3% QoQ.
JSW Steel – We forecast profits (standalone) to decline 31%QoQ to Rs5.7bn
in 1Q. We expect realizations to decline marginally by 1%QoQ in 4Q and
EBITDA/t to decline to US$167/t from US$201/t in 4Q.
Coal India: We forecast PAT of Rs38bn, down 9%QoQ (+57%YoY). We
forecast dispatches to increase 5%YoY and realizations to increase 20%YoY
(11%QoQ).
Sesa Goa – We expect profits to decline 20%QoQ to Rs11.7bn. Given
strong seasonality in iron ore volumes, YoY comparison is more meaningful.
We expect profits to decline 13% on a YoY basis. This is led by 7%YoY
increase in realizations though this is partly negated by higher export tax. We
expect volumes to decline 32%QoQ and 6% on a YoY basis due to slow
pace of shipments from Goa mines due to transport restrictions.
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