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Metals & Mining
ƒ EBITDA/tonne to remain under pressure
We expect the steel companies within our coverage universe to report a
muted set of numbers for Q2FY12 on the back of higher raw material
costs and subdued demand. The scenario of rising interest rates and
slowdown in infrastructure spending has led to domestic steel
consumption growing by merely 1.3% during the first five months of
FY12. Muted growth in steel demand has led to a marginal decline in
steel prices sequentially. As a result, for Q2FY12 we expect EBITDA per
tonne of major steel companies to decline in the range of ~ | 1000 to |
2700/tonne QoQ. Sequentially, we expect the EBITDA per tonne of Tata
Steel’s Indian operations to decline by ~| 1000/tonne while the EBITDA
per tonne of JSW Steel is expected decline by ~| 2700/tonne and
SAIL’s EBITDA per tonne is expected to decline by ~| 1200/tonne.
Going forward, we expect the EBITDA margins of steel players to
remain under pressure as the prices of key inputs are expected to
remain firm due to supply side bottlenecks.
ƒ Non ferrous companies to perform well YoY
All base metals prices in Q2FY12 have been notably higher on a YoY
basis. However, on a sequential basis, they have witnessed a moderate
correction. On the LME, for Q2FY12, average aluminium, copper, zinc
and lead prices have been higher by 15%, 24%, 10% and 20%,
respectively, on a YoY basis. On a QoQ basis, it has been lower by 8%,
2%, 1% and 4%, respectively. In our coverage, on a YoY basis, we
expect Hindustan Zinc and Sterlite Industries to post a good set of
numbers driven by higher volumes, improved realisations on LME and
improvement in by-product realisation viz., silver, etc.
ƒ EBITDA margins to take a hit QoQ as well as YoY
In Q1FY12E, we expect the EBITDA of the ICICIdirect.com coverage
universe to decline by 22.3% QoQ mainly on the back of higher
operating costs. EBITDA margins are expected to decline by 280 bps
QoQ and 110 bps YoY to 16.4%. We expect the PAT to for the
ICICIdirect.com coverage universe to decline by 24.8% QoQ and 18.7%
YoY.
Company specific view
Company Remarks
Adhunik Metaliks Sequentially, we expect overall steel sales volume to remain flat at ~73,000 tonnes.
Iron ore volumes are expected to decline by 30% QoQ to ~0.22 million tonnes
whereas manganese ore volumes are expected to decline by 43% QoQ to ~ 24,500
tonnes. We expect a subdued performance due to higher input costs
Graphite India In Q2FY12E, we expect capacity utilisation of the graphite electrodes segment to be
marginally higher sequentially at ~80% (Q1FY12 - 79%). EBITDA margins are
expected to remain flat at ~19.2%. PAT is expected to increase by 3.3% QoQ but
decline by 22.5% YoY
HEG During Q2FY12E, capacity utilisation level of the graphite electrodes segment is
expected to be ~80% (Q1FY12- 82%). EBITDA margins are expected to increase 340
bps QoQ to 19.2%. Sequentially, EBITDA margins are expected to improve as during
Q12FY12 the performance was impacted due to one-off process loss
Hindustan
Zinc
For Q1FY12E, we expect refined zinc sales to be at ~190,000 tonnes while lead
volumes are expected to be ~20,000 tonnes. Higher realisations coupled with
modest growth in volumes are expected to result in a healthy performance on a YoY
basis. However, sequentially the performance is expected to be subdued
JSW Steel On the back of a disruption in production (specifically for September 2011) due to
unavailability of iron ore, we expect sales volume of ~1.53 MT in Q2FY12 indicating a
decline of ~10% QoQ. Furthermore, we expect the EBITDA margin to drop sharply by
420 bps YoY and 640 bps QoQ to 12.9%
SAIL On a sequential basis, for Q2FY12 we expect the sales volumes to stay flat at ~2.9
MT (Q1FY12 - 2.8 MT). However, on the back of higher operating costs we expect the
EBITDA margin to decline by 470 bps YoY to 11.5%. PAT is expected to decline by
11% QoQ and 31% YoY
Sesa Goa Sales volumes for Q2FY12E are expected to decline ~53% QoQ but remain flat on a
YoY basis at ~2.1 MT. Volumes are expected to be impacted by heavy rains in Goa
and no contribution from Karnataka. However, realisations are expected to remain flat
on a sequential basis at ~US$90 per tonne
Sterlite
Industries
On a YoY basis, the performance is expected to be impressive on the back of a
healthy contribution from the domestic and international zinc business but be muted
on a sequential basis. On a QoQ basis, the topline is expected to remain flat while
EBITDA margins are expected to decline by 130 bps
Tata Steel Consolidated sales volumes for Q2FY12E are expected to decline ~8% QoQ to ~5.74
MT. Volumes from Indian and European operations are expected to be ~1.6 MT and
~3.2 MT, respectively. EBITDA margins are expected to decline by 260 bps QoQ to
10.8% due to higher operating costs
Usha Martin The topline for Q2FY12 is expected to remain flat both YoY as well as QoQ. However,
on the back of higher operating costs, the EBITDA margin is expected to decline by
190 bps YoY and 160 bps QoQ to 17.0%. PAT is expected to decline ~54.8% YoY on
account of higher depreciation and interest cost
Visa Steel On the back of commissioning of SMS, we expect an increase in the share of value
added products in the overall product mix. For Q2FY12, we expect the topline to
increase 8.8% QoQ while sequentially EBITDA is expected to increase 16.8%. PAT is
expected to decline 12.3% QoQ due to tax credit in Q1FY12
Source: Company, ICICIdirect.com Research
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