Metals
Subdued show to continue
We expect a subdued show from our metals universe yet again due to i) lower volumes on account of lacklustre demand ii) flat realizations (supported mainly by a depreciating rupee) on a sequential basis iii) marginally lower raw material costs in INR terms and iv) MTM forex losses due to sharp rupee depreciation. We expect only marginal improvement in margins sequentially and expect PAT to remain under pressure. Notable outperformers with better YoY performance would be only Coal India (CIL) and JSW steel (JSTL) on account of strong volume growth. We maintain our cautious stance on the ferrous space but remain positive on the mining space on account of volume growth, better pricing, low costs and attractive valuations.
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m Sales volume: No surprises except Coal India - We expect volumes to remain lower YoY for all companies under our universe except Coal India (CIL) and JSW steel. CIL and JSW are expected to witness sales volume growth of 6.3% YoY and 23.3% respectively.
m Realizations to remain flat sequentially: Global base metal and steel prices saw a sharp fall during the quarter but domestic realizations for ferrous makers are expected to remain flat sequentially due to sharp rupee depreciation preventing the fall in domestic markets. Among miners, NMDC is expected to benefit from price hikes and Coal India from better realizations under the new GCV pricing.
m Margins to remain weak despite sequential improvement on lower raw material costs: Margins are expected to improve by 100-300 bps QoQ for metal players in our universe due to marginally lower raw material costs but could still remain weak on an overall basis and lower by 200-400 bps YoY as the recovery in demand remains slow due to weak investment cycle growth.
m Reported net profits to feel rude shock due to rupee depreciation: We expect pressure on PAT due to higher interest costs and also substantial MTM forex losses for all players with foreign currency debt and current liabilities as rupee has remained weak overall. We expect YoY decline in adj-PAT from all companies under our universe except JSW steel and Coal India which are expected to witness strong volume growth YoY and thus report better operational performance.
m Maintain cautious view on the ferrous space and positive stance on the mining space in metals: We remain Cautious on the domestic ferrous space amidst tough operational environment and subdued global steel prices going ahead due to higher supplies and low demand. We also expect raw material prices to remain strong overall going ahead with weak rupee compounding woes. We maintain sell on ferrous large caps like Tata steel and SAIL. We are positive on the mining space on the back of volume growth, better pricing power in domestic markets and strong cash rich balance sheets of the major miners. We maintain Buy on mining stocks like NMDC and Coal India on attractive valuations and volume growth. We remain positive on the non-ferrous space as we see upward movement in LME prices going ahead and volume growth on account of completed expansions. We recommend buy on HZL and Sterlite Inds.
m Realizations to remain flat sequentially: Global base metal and steel prices saw a sharp fall during the quarter but domestic realizations for ferrous makers are expected to remain flat sequentially due to sharp rupee depreciation preventing the fall in domestic markets. Among miners, NMDC is expected to benefit from price hikes and Coal India from better realizations under the new GCV pricing.
m Margins to remain weak despite sequential improvement on lower raw material costs: Margins are expected to improve by 100-300 bps QoQ for metal players in our universe due to marginally lower raw material costs but could still remain weak on an overall basis and lower by 200-400 bps YoY as the recovery in demand remains slow due to weak investment cycle growth.
m Reported net profits to feel rude shock due to rupee depreciation: We expect pressure on PAT due to higher interest costs and also substantial MTM forex losses for all players with foreign currency debt and current liabilities as rupee has remained weak overall. We expect YoY decline in adj-PAT from all companies under our universe except JSW steel and Coal India which are expected to witness strong volume growth YoY and thus report better operational performance.
m Maintain cautious view on the ferrous space and positive stance on the mining space in metals: We remain Cautious on the domestic ferrous space amidst tough operational environment and subdued global steel prices going ahead due to higher supplies and low demand. We also expect raw material prices to remain strong overall going ahead with weak rupee compounding woes. We maintain sell on ferrous large caps like Tata steel and SAIL. We are positive on the mining space on the back of volume growth, better pricing power in domestic markets and strong cash rich balance sheets of the major miners. We maintain Buy on mining stocks like NMDC and Coal India on attractive valuations and volume growth. We remain positive on the non-ferrous space as we see upward movement in LME prices going ahead and volume growth on account of completed expansions. We recommend buy on HZL and Sterlite Inds.
Thanks & Regards,
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