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Riding uncertain tides
Rupee depreciation to offset metal price declines
The third quarter of the FY12 was characterised by the depreciation of
rupee and decline in the prices of the base metals on the LME. The
base metal prices declined 12% to 18% QoQ as the global economic
uncertainty continued. However, the depreciation in the rupee (11.4%
QoQ) partially offset the declines in the base metal prices. We believe,
the performance for non ferrous players will be more or less flattish
during Q3FY12 while the same will show a decline YoY due to lower
end metal prices. On the ferrous side, we expect integrated players to
post strong performance due to firm steel prices. JSW Steel is likely to
post sequential EBITDA growth on the back of higher production as
well as better raw material security.
Volumes not expected to provide positive surprise
The domestic economy hasn’t been robust in the recent past. The
same has plagued the capacity utilizations in the country and the
ferrous players have been facing the lower capacity utilizations.
However, the steel consumption has posted an increase in the third
quarter of FY12 but still is lower than the previous growth rates, which
equaled or surpassed GDP growth.
On the non ferrous side, we believe, the quarter will not bring any
huge positive or negative surprises. The realizations although suffered
on the LME, the Indian companies should thank rupee depreciation for
offsetting the same to an extent.
Things to watch out for going ahead
We believe, the metal sector companies will witness continued margin
pressure going ahead as well. The lack of full capacity utilizations for
the ferrous companies and steeper energy costs for the non ferrous
companies will act as a dampener for profits in the coming years. We
prefer companies with completed projects and operational mining
assets in the non ferrous space (Hindustan Zinc), while we continue to
be cautious on the ferrous space.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Riding uncertain tides
Rupee depreciation to offset metal price declines
The third quarter of the FY12 was characterised by the depreciation of
rupee and decline in the prices of the base metals on the LME. The
base metal prices declined 12% to 18% QoQ as the global economic
uncertainty continued. However, the depreciation in the rupee (11.4%
QoQ) partially offset the declines in the base metal prices. We believe,
the performance for non ferrous players will be more or less flattish
during Q3FY12 while the same will show a decline YoY due to lower
end metal prices. On the ferrous side, we expect integrated players to
post strong performance due to firm steel prices. JSW Steel is likely to
post sequential EBITDA growth on the back of higher production as
well as better raw material security.
Volumes not expected to provide positive surprise
The domestic economy hasn’t been robust in the recent past. The
same has plagued the capacity utilizations in the country and the
ferrous players have been facing the lower capacity utilizations.
However, the steel consumption has posted an increase in the third
quarter of FY12 but still is lower than the previous growth rates, which
equaled or surpassed GDP growth.
On the non ferrous side, we believe, the quarter will not bring any
huge positive or negative surprises. The realizations although suffered
on the LME, the Indian companies should thank rupee depreciation for
offsetting the same to an extent.
Things to watch out for going ahead
We believe, the metal sector companies will witness continued margin
pressure going ahead as well. The lack of full capacity utilizations for
the ferrous companies and steeper energy costs for the non ferrous
companies will act as a dampener for profits in the coming years. We
prefer companies with completed projects and operational mining
assets in the non ferrous space (Hindustan Zinc), while we continue to
be cautious on the ferrous space.
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