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India Metals and Mining Sector ----------------------------------------------------------------------------
1Q12 preview: Mixed EBITDA growth trends; steel volumes weak
● Weak 1Q12 for steel companies: Despite a weak 4Q11 in India,
prices were weak, and 1Q volumes were seasonally down and did
not pick up. 1Q EBITDA/t should be still better than what is
expected in 2Q given the full quarter impact of high coal costs.
● We estimate SAIL and Tata India saw volume declines in 1Q12,
but JSW managed to remain flat QoQ, while EBITDA/t was down
US$10-30/t QoQ. Tata Europe is also expected to see a fall in
EBITDA/t and volumes. Consolidated Tata profits should be
boosted by US$430 mn gain on Riversdale stake sale.
● By our estimate, HZL’s 1Q12 profit of Rs12 bn fell 31% QoQ on
lower concentrate sales and a US$140/t fall in Zn LME, but was
up 37% YoY. We believe costs increased by US$50/t. We
estimate Sterlite’s 1Q12 profit at Rs14.5 bn, which is lacklustre on
higher Balco costs.
● JSPL’s profit could be down QoQ and YoY on lower power prices
(Rs3.7/kwh) and no volumes from the captive power units. Higher
pellet sales and Shadeed volumes should offset this fall.
● We believe Coal India’s profit came in at Rs31.5 bn (+25% YoY),
driven by the full quarter impact of the price increases. We have
included OBR costs and increased personnel costs by 10% YoY.
Provisions for new labour contracts will be effective from 2Q.
We present 1Q FY12 estimates for metal stocks under our coverage.
Steel: Quarter weaker than earlier expected
1Q12 results are likely to stay weak, with muted YoY trends despite a
weak base quarter. Despite a weak 4Q11, volumes did not pick up
and behaved as per seasonality, and companies were unable to take
price increases. We expect 1Q HRC to be higher by US$17/t, primarily
helped a 1% appreciation in USD/INR. 1Q would be better than what
is likely for 2Q—in 2Q, we expect to see use of higher-cost coking
coal ($330/t) for all the three months versus 1-1.5 months in 1Q.
● SAIL: We expect sales volume to decline by 11% QoQ. According
to JPC, production fell 17% QoQ, implying SAIL has used up some
inventory. We expect EBITDA/t of ~US$150 (down US$15 QoQ).
● Tata Steel: Weak volumes in India (down 7% Q/Q) are not
surprising, while higher production (10% higher than sales) implies
that there could be inventory build-up in India—given its industrylow
costs, Tata rarely cuts production. We expect Indian EBITDA/t
to be at ~US$390. European sales volumes are expected to fall
5% YoY, and the lagged effect of price increases taken last
quarter should partially offset the rising raw material costs. We
expect EBITDA/t of ~US$40, a US$10 QoQ fall. Consolidated profits
should be boosted by Riversdale stake sale profits of ~US$430 mn.
● JSW: It is the only company to have seen decent volumes. We
expect flat volumes QoQ (including Ispat re-rolling volumes) and
EBITDA/t of ~US$172, a US$30 decline QoQ.
Hindustan Zinc: Weaker concentrate sales
4Q11 results were boosted by high concentrate sales, which are
unlikely to repeat this quarter. With average Zinc prices down US$140
Q/Q, we expect 1Q12 EBITDA/t to be ~US$1450 (we expect cost/t
has risen by ~$US50/t due to the full impact of higher coal prices and
a stronger rupee).
Sterlite: Lacklustre quarter, commentary on Power/VAL imp
Higher alumina and power costs should lead to Balco costs rising by
~US$185/t. We expect US$100 mn EBITDA from Zinc International.
Overall, with no significant improvement in volumes (except in SEL), we
expect the group to deliver EBITDA of US$526 mn, a decline of 22% QoQ.
JSPL: Power weaker, steel flat
Power segment results are expected to be weaker QoQ due to lower
realisation on merchant power sales. We expect average realisation to
fall to Rs3.7/unit (down 11% QoQ). We expect power to be
compensated by steel, which should perform better on higher pellet
sales and Shadeed. However, like other steel companies, raw
material costs could hurt.
Coal India: Seasonally weak, inventory decline is positive
We expect a 6% YoY increase in offtake on a 10 mn t inventory
drawdown, which is a positive and indicates better rake availability. We
believe substantial increases will be constrained by a lack of crushing
capacity. The full quarter impact of the price increases should help in a
substantial ~25% YoY improvement in profits. We have built in a 10%
YoY increase in personnel costs and included OBR provisioning.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Metals and Mining Sector ----------------------------------------------------------------------------
1Q12 preview: Mixed EBITDA growth trends; steel volumes weak
● Weak 1Q12 for steel companies: Despite a weak 4Q11 in India,
prices were weak, and 1Q volumes were seasonally down and did
not pick up. 1Q EBITDA/t should be still better than what is
expected in 2Q given the full quarter impact of high coal costs.
● We estimate SAIL and Tata India saw volume declines in 1Q12,
but JSW managed to remain flat QoQ, while EBITDA/t was down
US$10-30/t QoQ. Tata Europe is also expected to see a fall in
EBITDA/t and volumes. Consolidated Tata profits should be
boosted by US$430 mn gain on Riversdale stake sale.
● By our estimate, HZL’s 1Q12 profit of Rs12 bn fell 31% QoQ on
lower concentrate sales and a US$140/t fall in Zn LME, but was
up 37% YoY. We believe costs increased by US$50/t. We
estimate Sterlite’s 1Q12 profit at Rs14.5 bn, which is lacklustre on
higher Balco costs.
● JSPL’s profit could be down QoQ and YoY on lower power prices
(Rs3.7/kwh) and no volumes from the captive power units. Higher
pellet sales and Shadeed volumes should offset this fall.
● We believe Coal India’s profit came in at Rs31.5 bn (+25% YoY),
driven by the full quarter impact of the price increases. We have
included OBR costs and increased personnel costs by 10% YoY.
Provisions for new labour contracts will be effective from 2Q.
We present 1Q FY12 estimates for metal stocks under our coverage.
Steel: Quarter weaker than earlier expected
1Q12 results are likely to stay weak, with muted YoY trends despite a
weak base quarter. Despite a weak 4Q11, volumes did not pick up
and behaved as per seasonality, and companies were unable to take
price increases. We expect 1Q HRC to be higher by US$17/t, primarily
helped a 1% appreciation in USD/INR. 1Q would be better than what
is likely for 2Q—in 2Q, we expect to see use of higher-cost coking
coal ($330/t) for all the three months versus 1-1.5 months in 1Q.
● SAIL: We expect sales volume to decline by 11% QoQ. According
to JPC, production fell 17% QoQ, implying SAIL has used up some
inventory. We expect EBITDA/t of ~US$150 (down US$15 QoQ).
● Tata Steel: Weak volumes in India (down 7% Q/Q) are not
surprising, while higher production (10% higher than sales) implies
that there could be inventory build-up in India—given its industrylow
costs, Tata rarely cuts production. We expect Indian EBITDA/t
to be at ~US$390. European sales volumes are expected to fall
5% YoY, and the lagged effect of price increases taken last
quarter should partially offset the rising raw material costs. We
expect EBITDA/t of ~US$40, a US$10 QoQ fall. Consolidated profits
should be boosted by Riversdale stake sale profits of ~US$430 mn.
● JSW: It is the only company to have seen decent volumes. We
expect flat volumes QoQ (including Ispat re-rolling volumes) and
EBITDA/t of ~US$172, a US$30 decline QoQ.
Hindustan Zinc: Weaker concentrate sales
4Q11 results were boosted by high concentrate sales, which are
unlikely to repeat this quarter. With average Zinc prices down US$140
Q/Q, we expect 1Q12 EBITDA/t to be ~US$1450 (we expect cost/t
has risen by ~$US50/t due to the full impact of higher coal prices and
a stronger rupee).
Sterlite: Lacklustre quarter, commentary on Power/VAL imp
Higher alumina and power costs should lead to Balco costs rising by
~US$185/t. We expect US$100 mn EBITDA from Zinc International.
Overall, with no significant improvement in volumes (except in SEL), we
expect the group to deliver EBITDA of US$526 mn, a decline of 22% QoQ.
JSPL: Power weaker, steel flat
Power segment results are expected to be weaker QoQ due to lower
realisation on merchant power sales. We expect average realisation to
fall to Rs3.7/unit (down 11% QoQ). We expect power to be
compensated by steel, which should perform better on higher pellet
sales and Shadeed. However, like other steel companies, raw
material costs could hurt.
Coal India: Seasonally weak, inventory decline is positive
We expect a 6% YoY increase in offtake on a 10 mn t inventory
drawdown, which is a positive and indicates better rake availability. We
believe substantial increases will be constrained by a lack of crushing
capacity. The full quarter impact of the price increases should help in a
substantial ~25% YoY improvement in profits. We have built in a 10%
YoY increase in personnel costs and included OBR provisioning.
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