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Sequential improvement on lower costs
and higher volumes
Higher volumes on account of seasonal improvement in
demand, improved realizations on a sequential basis
and lower raw material costs (particularly for steel
producers) are expected to result in a sequential
improvement in profitability for metal companies in our
universe during Q4FY12. We see the earnings
improvement in Q4FY12 to be more seasonal in nature
rather than structural and still remain concerned on the
low demand-high supply dynamics in the global metals
space. We maintain our cautious stance on the ferrous
space but remain positive on the mining space on
account of attractive valuations and low costs.
Sales volume to improve sequentially: We expect volumes
to show sequential improvement on the back of higher
seasonal demand. Steel players are expected to show volume
growth with SAIL and JSW steel showing sequentially higher
sales. Among base metal players, HZL will see increase in lead
and silver volumes.
Realizations remain firm: Global base metal and steel prices
improved during the quarter and with rupee remaining weak,
we expect domestic realizations to remain firm on a sequential
basis and result in sequential revenue growth. Mining players
are expected to suffer a drop in realizations on a QoQ basis
due to drop in global prices.
Margins to remain weak despite sequential improvement:
Margins are expected to improve by 100-300 bps QoQ for
metal players in our universe but still remain weak on an
overall basis and lower YoY as the recovery in demand
remains slow.
Profits to remain subdued: We expect pressure on PAT due
to higher interest costs and expect only marginal recovery in
MTM forex losses of previous quarters as rupee has remained
weak overall. We expect sequential improvement in PAT from
all companies under our universe except NMDC which has
suffered due to lower volumes in Q4FY12E.
Maintain cautious view on the ferrous space: We remain
Cautious on the domestic ferrous space amidst tough
operational environment and subdued global steel prices
going ahead due to higher supplies. We also expect raw
material prices to spike yet again going ahead. We maintain
buy on mining stocks like NMDC and HZL on attractive
valuations and volume growth. We remain neutral on Sterlite
Industries due to concern over the proposed merger with Sesa
Goa. We maintain sell on Tata Steel and SAIL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sequential improvement on lower costs
and higher volumes
Higher volumes on account of seasonal improvement in
demand, improved realizations on a sequential basis
and lower raw material costs (particularly for steel
producers) are expected to result in a sequential
improvement in profitability for metal companies in our
universe during Q4FY12. We see the earnings
improvement in Q4FY12 to be more seasonal in nature
rather than structural and still remain concerned on the
low demand-high supply dynamics in the global metals
space. We maintain our cautious stance on the ferrous
space but remain positive on the mining space on
account of attractive valuations and low costs.
Sales volume to improve sequentially: We expect volumes
to show sequential improvement on the back of higher
seasonal demand. Steel players are expected to show volume
growth with SAIL and JSW steel showing sequentially higher
sales. Among base metal players, HZL will see increase in lead
and silver volumes.
Realizations remain firm: Global base metal and steel prices
improved during the quarter and with rupee remaining weak,
we expect domestic realizations to remain firm on a sequential
basis and result in sequential revenue growth. Mining players
are expected to suffer a drop in realizations on a QoQ basis
due to drop in global prices.
Margins to remain weak despite sequential improvement:
Margins are expected to improve by 100-300 bps QoQ for
metal players in our universe but still remain weak on an
overall basis and lower YoY as the recovery in demand
remains slow.
Profits to remain subdued: We expect pressure on PAT due
to higher interest costs and expect only marginal recovery in
MTM forex losses of previous quarters as rupee has remained
weak overall. We expect sequential improvement in PAT from
all companies under our universe except NMDC which has
suffered due to lower volumes in Q4FY12E.
Maintain cautious view on the ferrous space: We remain
Cautious on the domestic ferrous space amidst tough
operational environment and subdued global steel prices
going ahead due to higher supplies. We also expect raw
material prices to spike yet again going ahead. We maintain
buy on mining stocks like NMDC and HZL on attractive
valuations and volume growth. We remain neutral on Sterlite
Industries due to concern over the proposed merger with Sesa
Goa. We maintain sell on Tata Steel and SAIL.
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