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India Infoline Private Client Research Team/
11:37 , Jul 06, 2012
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Coal India’s offtake is expected to increase from 106mn tons in Q1 FY12 to 114mn tons on the back of higher output and increase in availability of rakes.
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- Domestic steel prices during the quarter were marginally higher on a qoq basis. The marginal increase in domestic steel prices was largely due to a depreciating Rupee against the Dollar, as global steel prices declined sharply in Q1 FY13. Chinese HRC export steel prices after rising to US$650/ton by the end of March ’12 declined below the US$600/ton mark as demand for the metal remained subdued globally. Average Selling Prices (ASPs) for the steel players to improve 1-2% on a qoq basis as the impact of price hikes announced would be seen with a lag. Demand in India too remained low due to a sluggish demand from the steel consuming sectors; Automobile, consumer durables and infrastructure. As a result, steel volumes for the steel players are expected to decline on a qoq basis. We expect Sesa Goa’s iron ore volumes to be lower on a yoy basis due to lower contribution from Karnataka mines and restriction of truck movement in Goa. Coal India’s offtake is expected to increase from 106mn tons in Q1 FY12 to 114mn tons on the back of higher output and increase in availability of rakes.
- During the quarter, base metal prices declined the most as the European debt crisis and demand slowdown in China led to a sell-off in most of the metals. On a qoq basis, the decline was highest in aluminium (8.7%), followed by lead (5.9%), copper (5.7%) and Zinc (5%). As seen in the ferrous space, the impact of the decline in domestic metal producers was cushioned by the deprecation of the rupee. In fact only aluminium prices are lower on a qoq basis in Rupee terms, rest all metals are higher on a qoq basis. For Sterlite A) HZL zinc volumes are expected to remain lower qoq following the closure of the Vizag unit and lower metal ore grades. B) Lead volumes to remain flat. C) Silver volumes to rise due to higher contribution from new refinery D) Power volumes to increase on account of higher PLFs in SEL. E) Copper and aluminium volumes are expected to be marginally lower qoq. Volumes for both Hindalco and NALCO are expected to be marginally lower on a qoq basis.
- Q1 FY13 would be marginally better than Q4 FY12 on the operating margins front. Margins would expand due to 1-2% increase in steel realizations and lower coking coal costs. Coking coal prices have been in the declining trend over the last one year. EBIDTA/ton for Tata Steel Europe would improve significantly on account of lower raw material costs and impact of price hikes announced in Q4 FY12. Coal India’s profitability would increase due to many one-off items were booked in Q4 FY12. E-auction sales volume is expected to decline qoq as the company’s focus was to supply coal to the power producers.
- For the non-ferrous space, margins are expected to decline on a sequential basis due to a decline in metal volumes and subdued realisations. An increase in Tc/Rc margins would also lead to margin expansion for both copper division of both Sterlite and Hindalco.
- JSPL on account of its raw material integration and strong volume growth is our top pick in the ferrous space. From the non-ferrous space Hindustan Zinc and Coal India from the mining space are amongst our top bets.
Q1 FY13 estimates
Company
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Sales (Rs mn)
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OPM (%)
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PAT (Rs mn)
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Q1 FY13
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yoy (%)
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qoq (%)
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Q1 FY13
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yoy (bps)
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qoq (bps)
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Q1 FY13
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yoy (%)
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qoq (%)
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Coal India
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170,949
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17.9
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(12.0)
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25.0
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(825)
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550
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40,659
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(1.9)
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1.3
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Hindalco*
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70,928
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17.6
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(7.2)
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10.7
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(366)
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(58)
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5,110
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(20.7)
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(20.2)
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HZL
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30,108
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5.7
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(4.0)
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54.0
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(191)
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109
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14,394
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(3.7)
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1.9
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JSPL
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51,991
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31.8
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(5.2)
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39.8
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(139)
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491
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10,953
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19.2
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(6.1)
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JSW*
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92,002
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30.1
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(3.6)
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17.5
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(224)
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17
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5,579
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(3.5)
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0.9
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NALCO
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17,058
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(3.2)
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(4.4)
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19.1
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(1093)
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194
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2,289
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(39.3)
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(18.9)
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NMDC
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27,430
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(1.4)
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5.7
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78.7
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(233)
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248
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17,909
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(0.6)
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9.0
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Sesa Goa
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19,396
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(8.0)
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(30.6)
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48.5
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(580)
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709
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12,163
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44.1
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(12.4)
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Sterlite
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102,910
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4.4
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(4.9)
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25.9
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(203)
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1018
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12,702
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(22.5)
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(0.5)
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Tata Steel
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330,994
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0.3
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(2.6)
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10.0
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(343)
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62
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5,403
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(89.9)
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24.6
| * Standalone results
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| Thank you for the rating. |
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