Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We expect a sequential fall in steel margins on soft realisations and peak RM prices. We
believe non-ferrous earnings will be supported by LME prices, but the miners could
experience weak volumes as a result of the monsoon season.
Steel: margins under pressure as peak RM prices flow through
We expect average steel realisations to be flattish qoq in 2Q12 on weak demand due to the
monsoon season and high interest rates. Steel consumption grew just 1.3% yoy in AprilAugust 2011, while production grew 9.9%. We expect a 4Q11 peak coking coal price of
US$330/t to flow through its entirety in 2Q12 as lower-cost inventory had been used up in
1Q. We forecast SAIL’s EBITDA at US$97/t and Tata Steel’s (domestic) at US$411/t. We
believe JSW Steel was hit by higher iron ore costs due to the Karnataka mining ban and the
resultant e-auction. We forecast JSW Steel’s EBITDA at US$134/t. JSP should be relatively
insulated from RM pressures and we forecast its EBITDA at Rs15.4bn.
LME prices to support non-ferrous earnings; miners’ volumes hit by monsoon
LME prices corrected sharply in September (aluminium: -8%; zinc: -15%; lead: -19%; and
silver: -27%). Although aluminium fell by 8% qoq in 2Q, the average prices of other metals
were largely flattish (zinc: -4%; lead: -2%; and silver: +1%). We expect LME prices to largely
support earnings, but for cost inflation to continue hurting margins. We expect strong
earnings from HZN (EBITDA of Rs16.9bn), which should aid STLT too. We forecast
Hindalco’s EBITDA at Rs8.4bn and believe Novelis should post a robust EBITDA of
US$280m. We expect the miners’ volumes to be under pressure due to the monsoon season
(Coal India: 97mt; Sesa Goa: 2.1mt). Sesa Goa will also be impacted by the ban in
Karnataka, in our view, though NMDC’s volumes should be strong at 6.6mt.
JSP, NMDC and HZN among our top picks
We expect margins of steel companies to remain under pressure given soft steel realisations and
elevated RM prices. However, JSW Steel is attractive, in our view, and captive resources should
keep JSP relatively insulated. Although we expect continuing correction in LME prices to hurt
non-ferrous earnings in 2H12, we see limited downside for cash-rich HZN. Novelis will also be
relatively insulated, in our view. We have Buy on HNDL, HZN, JSP, JSW Steel, NMDC, Sesa
Goa, JSW Steel; Hold on Nalco; and Sell on Coal India and SAIL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We expect a sequential fall in steel margins on soft realisations and peak RM prices. We
believe non-ferrous earnings will be supported by LME prices, but the miners could
experience weak volumes as a result of the monsoon season.
Steel: margins under pressure as peak RM prices flow through
We expect average steel realisations to be flattish qoq in 2Q12 on weak demand due to the
monsoon season and high interest rates. Steel consumption grew just 1.3% yoy in AprilAugust 2011, while production grew 9.9%. We expect a 4Q11 peak coking coal price of
US$330/t to flow through its entirety in 2Q12 as lower-cost inventory had been used up in
1Q. We forecast SAIL’s EBITDA at US$97/t and Tata Steel’s (domestic) at US$411/t. We
believe JSW Steel was hit by higher iron ore costs due to the Karnataka mining ban and the
resultant e-auction. We forecast JSW Steel’s EBITDA at US$134/t. JSP should be relatively
insulated from RM pressures and we forecast its EBITDA at Rs15.4bn.
LME prices to support non-ferrous earnings; miners’ volumes hit by monsoon
LME prices corrected sharply in September (aluminium: -8%; zinc: -15%; lead: -19%; and
silver: -27%). Although aluminium fell by 8% qoq in 2Q, the average prices of other metals
were largely flattish (zinc: -4%; lead: -2%; and silver: +1%). We expect LME prices to largely
support earnings, but for cost inflation to continue hurting margins. We expect strong
earnings from HZN (EBITDA of Rs16.9bn), which should aid STLT too. We forecast
Hindalco’s EBITDA at Rs8.4bn and believe Novelis should post a robust EBITDA of
US$280m. We expect the miners’ volumes to be under pressure due to the monsoon season
(Coal India: 97mt; Sesa Goa: 2.1mt). Sesa Goa will also be impacted by the ban in
Karnataka, in our view, though NMDC’s volumes should be strong at 6.6mt.
JSP, NMDC and HZN among our top picks
We expect margins of steel companies to remain under pressure given soft steel realisations and
elevated RM prices. However, JSW Steel is attractive, in our view, and captive resources should
keep JSP relatively insulated. Although we expect continuing correction in LME prices to hurt
non-ferrous earnings in 2H12, we see limited downside for cash-rich HZN. Novelis will also be
relatively insulated, in our view. We have Buy on HNDL, HZN, JSP, JSW Steel, NMDC, Sesa
Goa, JSW Steel; Hold on Nalco; and Sell on Coal India and SAIL.
No comments:
Post a Comment