Small Business
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Soft metal
Inds 20,332 -17.1 5,109 -32.5 3,062 -30.5 41.9 0.3 21.1 4.6 775 64,505 18.5 11.9 Tata Steel 127,097 -11.7 7,783 -65.6 -1,227 NA 22.9 1.6 1.5 510 45,279 18.0 7.8 E: Analysts" estimates D-E ratio is debt-equity ratio Source: BS Research Bureau Nalco Nalco, another low cost producer of aluminium globally, has been able to grow in terms of volumes despite the depressed LME metal prices. The company reported 20.46 per cent growth in its production volumes in June quarter. It has increased its alumina and aluminium production capacities by 31 per cent to 2.1 million tonne, and by 28 per cent to 0.46 million tonne, respectively. Revenues are however, expected to be lower by about 9-10 per cent this year, due to lower metal prices. Analysts estimate LME prices to trade lower, which will also mean lower realisations for Nalco as it mostly deals in primary aluminium products, wherein prices closely track the trend in LME aluminium prices. Operating profit margins, too, are seen lower at 26.5 per cent as against the 32.9 per cent in 2008-09. Analysts expect its aluminium volumes to grow by about 10-15 per cent in 2010-11. Nevertheless, the stock is over-valued and more than factors in the positives. Ferrous metal—Steel Globally, about 60 per cent of steel is consumed by the US, Europe and China. The recent recovery in industrial activities of these countries is some good news for the sector. This is also evident from the increase in steel production from the lows of last year. “Globally, the demand has improved partly due to the fact that most of the inventories were depleted and people are once again buying to build their inventories led by marginal recovery seen in the end user industries,” says Manoj Kumar Agarwal, MD, Adhunik Metaliks. The recovery however, is not strong as global steel demand in CY2009 is expected to be lower by about 9-10 per cent and is seen recovering only in CY2010 by about 4-5 per cent. The results are also seen in global steel prices, which corrected from $1,100 per tonne in July 2008 to a low of about $400 per tonne in May 2009, and are now up to $550 per tonne levels. However, prices are not expected to move up fast and are seen hovering around $600 in CY2010 as demand is yet to pick up on a sustainable basis. Steel companies also believe that only if coking coal and iron ore prices move up sharply (earlier levels of $300 and $200, respectively), then prices will move higher. Tata Steel While Tata Steel’s European subsidiary, Corus (accounts for almost 80 per cent of consolidated revenues), incurred losses in June 2009 quarter, on the back of an expected revival in European economies, it is likely to do well. Corus’ capacity utilisation is expected to go up from 53 per in June 2009 to 70 per cent this year and about 80 per cent in 2010-11. Besides, recovery in steel prices along with measures to curtail production costs by $1.2 billion at Corus should help improve margins. While Corus reported an operating loss of $117 per tonne, it is now expected to report profits in 2009-10 and 2010-11 adding significantly to Tata Steel’s consolidated performance. Tata Steel’s domestic operations are growing with strong volumes, however realisations are lower compared to last year. Its advantage of low cost of production and focus on long products has helped tap the emerging demand from the domestic infrastructure sector. Its steel volumes were up by about 22 per cent in quarter ended June 2009. Though fundaments are improving, analysts feel that the share price is up significantly and the stock can only be considered from a two year perspective on the hope that global economies recover as anticipated. SAIL SAIL largely sells its produce in the domestic market, which is also a reason that it is relatively insulated from the slowdown as local demand has been relatively better. However, its realisations will be lower this year, and thus, its revenues are expected to fall by 10-12 per cent. Positively, lower raw material costs (average coal cost was over $250 per tonne in 2008-09 and is expected to be $150 per tonne in 2009-10; it was $185 in June 2009 quarter) mean that operating profits should be slightly higher this year. The larger benefits will be post 2012, as its current capacities will go up from 11.4 million tonne to 20.2 million tonne by March 2012. Analysts believe valuations are not cheap. JSW Steel The recent recovery in steel demand and prices along with higher production and cost savings (led by lower coking coal and iron ore prices) have proved positive for JSW Steel, whose share prices has risen by 250 per cent since January 2009. JSW has recently added 2.8 million tonne of new crude steel capacity, taking its total capacity to 7.8 million tonnes. It is further expanding its capacities by 10 million tonnes by March 2011. Due to higher capacity JSW Steel has projected a 78 per cent growth in sales volumes at 6.1 million tonne for 2009-10. While analysts expect the volume growth to range 60-65 per cent, they believe it will not translate into revenue and profit growth, as realisations would be lower compared to last year. In 2008-09, average realisations were Rs 37,117 per tonne and are projected to come down to Rs 26,000-28,000 per tonne in 2009-10, due to lower steel prices. At the current levels, the stock is expensive.Pages: 1 [2]