Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Metals (Bhaskar.N.Basu, CFA)
Underweight
Key drivers of sector outlook
Base Metals outlook: We remain cautious as global growth should slow due to
structural (sovereign debt issues) and cyclical headwinds (low confidence). High
event risk related to sovereign debt issues should prevent a sharp rebound in
consumer confidence (imp. for private sector spending). Also, we expect China’s
metal demand growth to moderate from peak levels seen in the past few years.
Aluminum: Despite structural issues around excess capacity and high inventory,
Al physical market has been tight due to financing deals and low warehouse load
out rates. While we expect financing deals to support Al prices in CY12, we expect
physical markets to be less undersupplied in CY12 vs. CY11 due to slowing
growth. We forecast Al LME of US$2297/t in FY12 & US$2425/t in FY13.
Zinc: We expect upsides to Zn prices to be capped near term as Zn markets are
well supplied. But prices should be supported near current levels as we expect
concentrate markets to remain tight in CY12. We believe tight mine supply could
push Zn markets into deficit in 2013. We forecast Zn LME of US$2116/t in FY12
& US$2300/t in FY13.
Steel: Pricing power for steel firms globally should remain tough in CY12 due to
slowing global demand and rising supply. We expect India to become a net exporter
of steel in FY13 due to sluggish demand and expected capacity additions. This
could result in 1) domestic prices shifting below import parity; 2) lower
utilizations. We forecast dom. HRC of Rs34,075/t in FY12 & Rs32,894/t in FY13.
Top Buy: Sterlite
Top Underperformer: Nalco
Top Buy: Sterlite
Sterlite (STLT) has multiple growth drivers, including low-cost zinc assets,
growing silver profits. We see less downside risks to zinc prices (70% of FY13E
EBITDA) from current levels. Also STLT offers leverage to our positive medium
term zinc view. Coal availability issues at Sterlite Energy & exposure to loss
making VAL assets/balance sheet have been an overhang on the stock, but this
is likely priced in. Valuation at 3xFY13E EBITDA looks attractive. Better coal
availability post monsoon and ramp-up in silver output are potential triggers.
We expect zinc/lead EBIDTA CAGR of 10.6% over FY11-14E, mainly due to the
commissioning of 100ktpa Dariba smelter in 2QFY12. Also saleable silver output
is expected to increase post Dec Q due to expected commissioning of the new
350tpa silver refinery in Dec Q. We expect silver volumes CAGR of 29% over
FY11-14E and expect silver to contribute to 8% of FY13E EBITDA.
Current share price of STLT & HZL imply a value of about Rs10/share for ex
HZL business (Anglo Zn, Cu TCRC, SEL & Al), implying a negative value to SEL
& VAL assets. Hence, concerns around VAL/SEL appear to be priced in.
Key risks are: 1) lower metal prices; 2) project delays; 3) coal supply issues at
SEL; 4) VAL balance sheet stress and higher equity exposure in VAL; 5)
potential mining tax.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Metals (Bhaskar.N.Basu, CFA)
Underweight
Key drivers of sector outlook
Base Metals outlook: We remain cautious as global growth should slow due to
structural (sovereign debt issues) and cyclical headwinds (low confidence). High
event risk related to sovereign debt issues should prevent a sharp rebound in
consumer confidence (imp. for private sector spending). Also, we expect China’s
metal demand growth to moderate from peak levels seen in the past few years.
Aluminum: Despite structural issues around excess capacity and high inventory,
Al physical market has been tight due to financing deals and low warehouse load
out rates. While we expect financing deals to support Al prices in CY12, we expect
physical markets to be less undersupplied in CY12 vs. CY11 due to slowing
growth. We forecast Al LME of US$2297/t in FY12 & US$2425/t in FY13.
Zinc: We expect upsides to Zn prices to be capped near term as Zn markets are
well supplied. But prices should be supported near current levels as we expect
concentrate markets to remain tight in CY12. We believe tight mine supply could
push Zn markets into deficit in 2013. We forecast Zn LME of US$2116/t in FY12
& US$2300/t in FY13.
Steel: Pricing power for steel firms globally should remain tough in CY12 due to
slowing global demand and rising supply. We expect India to become a net exporter
of steel in FY13 due to sluggish demand and expected capacity additions. This
could result in 1) domestic prices shifting below import parity; 2) lower
utilizations. We forecast dom. HRC of Rs34,075/t in FY12 & Rs32,894/t in FY13.
Top Buy: Sterlite
Top Underperformer: Nalco
Top Buy: Sterlite
Sterlite (STLT) has multiple growth drivers, including low-cost zinc assets,
growing silver profits. We see less downside risks to zinc prices (70% of FY13E
EBITDA) from current levels. Also STLT offers leverage to our positive medium
term zinc view. Coal availability issues at Sterlite Energy & exposure to loss
making VAL assets/balance sheet have been an overhang on the stock, but this
is likely priced in. Valuation at 3xFY13E EBITDA looks attractive. Better coal
availability post monsoon and ramp-up in silver output are potential triggers.
We expect zinc/lead EBIDTA CAGR of 10.6% over FY11-14E, mainly due to the
commissioning of 100ktpa Dariba smelter in 2QFY12. Also saleable silver output
is expected to increase post Dec Q due to expected commissioning of the new
350tpa silver refinery in Dec Q. We expect silver volumes CAGR of 29% over
FY11-14E and expect silver to contribute to 8% of FY13E EBITDA.
Current share price of STLT & HZL imply a value of about Rs10/share for ex
HZL business (Anglo Zn, Cu TCRC, SEL & Al), implying a negative value to SEL
& VAL assets. Hence, concerns around VAL/SEL appear to be priced in.
Key risks are: 1) lower metal prices; 2) project delays; 3) coal supply issues at
SEL; 4) VAL balance sheet stress and higher equity exposure in VAL; 5)
potential mining tax.
No comments:
Post a Comment