Ferrous and non-ferrous metal companies are expected to post only single-digit growth in sales and profit in the quarter ended September, due to a decline in steel prices, flat London Metal Exchange prices and higher input cost.
The cost of coking coal rose 7.5 per cent in the quarter. However, the consolidated performance of Tata Steel and Hindalco is likely to push profit of the sector by a little over 150 per cent.
Domestic steel companies are likely to show eight per cent rise in net sales due to lower realisations, as prices decline in the first two months of the second quarter. However, during the past month, with production cuts announced in China, steel prices have rallied by $50-100/tonne in various regions.
Steel Authority of India (SAIL) and Jindal Saw are expected to show declines in net sales, while standalone Tata Steel is expected to show an 18 per cent rise in sales. On a consolidated basis, Tata Steel is expected to drive the sector’s profit growth rate by a robust 875 per cent. With recovery in global steel prices, Corus, its European arm, will remain profitable in the second quarter.
Operating margins are expected to decline by 50 basis points due to margins’ pressure on SAIL, JSW Steel and Jindal Steel & Power. SAIL has the worst cost structure due to high employee costs, which squeeze margins in times of falling steel prices. So, operating margins should decline by 600 basis points, analysts expect.
| FALLING NUMBERS Estimated Q2 growth of metal companies | |||
| Sales | Opr profit | Net profit | |
| Bhushan Steel | 3.69 | 43.84 | 19.13 |
| Hind Zinc | 13.33 | 0.70 | -1.38 |
| Hindalco | 10.43 | 43.49 | 69.50 |
| Hindalco © | 11.60 | 13.40 | 111.70 |
| Jindal Saw | -22.17 | -1.71 | -0.61 |
| Jindal Steel Power | 34.30 | 30.21 | 27.32 |
| JSW Steel | 18.60 | -8.73 | -22.57 |
| SAIL | -1.51 | -27.00 | -31.62 |
| Sterlite Ind | -1.99 | 13.29 | 6.62 |
| Tata Steel | 17.94 | 39.41 | 66.98 |
| Tata Steel © | -1.42 | 754.46 | LTP** |
| Metal (s) | 7.50 | 11.46 | 9.33 |
| Metals © | 4.19 | 32.41 | 145.54 |
| (s) growth rate for standalone companies (©) growth rate including consolidated result of Hindalco & Tata Steel ** from loss to profit | |||
Tata Steel is lined up for a good show, with an over 600-bps rise in margins. The aggregate net profit of the sector is expected to go up by only four per cent, despite an expected 67 per cent net profit growth for Tata Steel. SAIL and JSW Steel are likely to post 20-30 per cent decline in net profit.
In the non-ferrous segment, most companies are likely to report flat numbers, quarter on quarter, as price and costs have remained largely constant in the second quarter. Sales are expected to rise around seven per cent and profit is expected to move up around 19 per cent. The operating margins are expected to show a significant rise on the back of a 350-bps margins’ increase for Hindalco and Sterlite Industries.
Hindalco sells 54 per cent of its aluminium production as value added products, which helps the company to sustain realisations. On a consolidated basis, Hindalco is expected to show pressure on margins but net profit may go up by over 100 per cent, on account of a turnaround by Novelis.
