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3QFY15E preview: weak for steel. Domestic steel companies will report a 3-27% qoq
decline in EBITDA due to a 3-4% decline in steel prices, high iron ore costs due to mine
shutdowns and muted sales; Tata Steel will be impacted most. Non-ferrous names will
benefit from higher volumes from aluminum capacity ramp-ups and increased zinc
mined metal production. Sesa Sterlite will still report a sequential EBITDA decline due to
Cairn. We maintain our cautious outlook on the sector and prefer companies with low
raw material benefit/regulatory risks. We prefer Sesa Sterlite and JSW Steel.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
A weak quarter for steel companies due to price cuts, large imports and muted demand
Domestic steel companies will report a 3-27% sequential decline in EBITDA due to (1) a 3-4%
qoq decline in domestic steel realizations, led by increased pressure from cheaper imports from
China and CIS countries. Steel companies had to bear consecutive price cuts in all the three
months of the quarter. India’s steel imports increased in October-November 2014 to 1.7 mn
tons from 0.7 mn tons a year earlier. Imports increased due to a 6-8% decline in international
steel prices and (2) poor sales volumes due to muted domestic demand (+1% over AprilNovember
2014) and loss of share to cheaper imports. We expect build-up of inventories for
domestic steelmakers. In addition to lower realizations, temporary shutdown of iron ore mines
in Odisha/Jharkhand will impact costs of steelmakers, especially Tata Steel.
Higher aluminum and zinc volumes will aid non-ferrous names; Cairn to be a drag for SSLT
We expect sequential improvement in metal volumes; aluminum names (Hindalco/Sesa Sterlite)
will benefit from a ramp-up of new capacities and Hindustan Zinc will benefit from recovery in
mined metal production from higher waste mining in previous quarters. Despite higher EBITDA from
aluminum and zinc, Sesa Sterlite’s EBITDA will decline sequentially due to Cairn India. We expect
Hindalco’s standalone EBITDA to increase from higher metal volumes from Mahan and Aditya,
though we highlight that costs can be unpredictable in the ramp-up phase, more so given
uncertainty about coal availability/costs. We expect a muted quarter for Novelis due to weak seasonal
demand.
Steel results: sequential EBITDA decline of 3-27%; Tata Steel may report net loss
We expect a 3-27% decline in EBITDA of steel names due to lower realization and cost
pressure.
Tata Steel. We expect Tata Steel’s consolidated EBITDA to decline 23% qoq to `28 bn (-
30% yoy). We expect a steep EBITDA decline in Indian operations (`21.1 bn, -32% qoq) due
to
(1) a 3-4% decline in steel realizations and (2) use of external iron ore due to temporary
shutdown of captive mines. We expect Europe EBITDA of US$35/ton (-23% qoq).
JSW Steel. We expect consolidated EBITDA of `20.6 bn (-27% qoq, -15% yoy). We estimate
standalone EBITDA/ton to decline by 22% qoq to `6,700/ton due lower domestic and export
realizations. We expect 4% qoq decline in steel deliveries and inventory build-up.
Jindal Steel & Power. We expect flat qoq consolidated EBITDA of `16.4 bn (-4% yoy).
Lower EBITDA in steel business (-3% qoq) will be offset by Jindal Power from higher
generation at Tamnar II. We expect JPL's EBITDA to increase 4% qoq to `5.5 bn (+44% yoy).
A sequential decline in NMDC’s EBITDA due to lower volumes and realizations
We expect NMDC’s EBITDA to decline 12% qoq to `17.6 bn (-8% yoy) due to 4% qoq decline
in iron ore deliveries to 7 mn tons and 1-4% cut in Chhattisgarh prices besides weak export
realizations. We expect a significant fall in NMDC’s exports given lower international prices.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily08012015ax.pdf
3QFY15E preview: weak for steel. Domestic steel companies will report a 3-27% qoq
decline in EBITDA due to a 3-4% decline in steel prices, high iron ore costs due to mine
shutdowns and muted sales; Tata Steel will be impacted most. Non-ferrous names will
benefit from higher volumes from aluminum capacity ramp-ups and increased zinc
mined metal production. Sesa Sterlite will still report a sequential EBITDA decline due to
Cairn. We maintain our cautious outlook on the sector and prefer companies with low
raw material benefit/regulatory risks. We prefer Sesa Sterlite and JSW Steel.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
A weak quarter for steel companies due to price cuts, large imports and muted demand
Domestic steel companies will report a 3-27% sequential decline in EBITDA due to (1) a 3-4%
qoq decline in domestic steel realizations, led by increased pressure from cheaper imports from
China and CIS countries. Steel companies had to bear consecutive price cuts in all the three
months of the quarter. India’s steel imports increased in October-November 2014 to 1.7 mn
tons from 0.7 mn tons a year earlier. Imports increased due to a 6-8% decline in international
steel prices and (2) poor sales volumes due to muted domestic demand (+1% over AprilNovember
2014) and loss of share to cheaper imports. We expect build-up of inventories for
domestic steelmakers. In addition to lower realizations, temporary shutdown of iron ore mines
in Odisha/Jharkhand will impact costs of steelmakers, especially Tata Steel.
Higher aluminum and zinc volumes will aid non-ferrous names; Cairn to be a drag for SSLT
We expect sequential improvement in metal volumes; aluminum names (Hindalco/Sesa Sterlite)
will benefit from a ramp-up of new capacities and Hindustan Zinc will benefit from recovery in
mined metal production from higher waste mining in previous quarters. Despite higher EBITDA from
aluminum and zinc, Sesa Sterlite’s EBITDA will decline sequentially due to Cairn India. We expect
Hindalco’s standalone EBITDA to increase from higher metal volumes from Mahan and Aditya,
though we highlight that costs can be unpredictable in the ramp-up phase, more so given
uncertainty about coal availability/costs. We expect a muted quarter for Novelis due to weak seasonal
demand.
Steel results: sequential EBITDA decline of 3-27%; Tata Steel may report net loss
We expect a 3-27% decline in EBITDA of steel names due to lower realization and cost
pressure.
Tata Steel. We expect Tata Steel’s consolidated EBITDA to decline 23% qoq to `28 bn (-
30% yoy). We expect a steep EBITDA decline in Indian operations (`21.1 bn, -32% qoq) due
to
(1) a 3-4% decline in steel realizations and (2) use of external iron ore due to temporary
shutdown of captive mines. We expect Europe EBITDA of US$35/ton (-23% qoq).
JSW Steel. We expect consolidated EBITDA of `20.6 bn (-27% qoq, -15% yoy). We estimate
standalone EBITDA/ton to decline by 22% qoq to `6,700/ton due lower domestic and export
realizations. We expect 4% qoq decline in steel deliveries and inventory build-up.
Jindal Steel & Power. We expect flat qoq consolidated EBITDA of `16.4 bn (-4% yoy).
Lower EBITDA in steel business (-3% qoq) will be offset by Jindal Power from higher
generation at Tamnar II. We expect JPL's EBITDA to increase 4% qoq to `5.5 bn (+44% yoy).
A sequential decline in NMDC’s EBITDA due to lower volumes and realizations
We expect NMDC’s EBITDA to decline 12% qoq to `17.6 bn (-8% yoy) due to 4% qoq decline
in iron ore deliveries to 7 mn tons and 1-4% cut in Chhattisgarh prices besides weak export
realizations. We expect a significant fall in NMDC’s exports given lower international prices.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily08012015ax.pdf
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