Steel companies are set to report better financial results in the seasonally weak July-September quarter on account of sharp rupee depreciation and good monsoon.
“Due to sharp depreciation in rupee, exports had become extremely lucrative during the quarter.
All leading players including Tata Steel, JSW Steel and SAIL have significantly hiked exports,” Prince Poddar, research associate at Emkay Global Financial Services, said.
Though domestic demand grew barely, profitability improved due to lower coking coal prices and hike in product prices.
Coking coal prices have declined to $145 per tonne in July-September from $225 a year ago and $172 in June quarter.
Steel makers such as SAIL, JSW Steel and Essar Steel took price hikes of Rs700- 2,500/tonne during the quarter.
Real steel consumption in India rose just 0.3% yoy during April– August 2013 due to slump in construction and automotive sectors.
“Ferrous segment is expected to post a 40% year-on-year (yoy) jump in operating profit due to lower coking coal costs, while witnessing a 6% quarter-on-quarter (qoq) rise on the back of improving realisation. At the net profit level, ferrous segment is expected to report a 25% yoy rise and a 10% qoq drop due to forex losses, despite strong performance at the Ebitda level,” a Nirmal Bang report said.
All the major players reported significant jump in sales volumes during the second quarter on higher exports. Tata Steel’s sales volumes rose nearly 8% on-year to 2.04 million tonne in Q2, while for SAIL they increased 14% at 3.1 mt. SAIL’s exports rose 47% at 1.3 lakh tonne during Q2.
Most analysts expect higher volumes to sustain as rupee continues to stay around 62 to a dollar.
“Steel companies would continue to focus on exports. Also, October-December is a seasonally good quarter as demand from construction sector revives post monsoon. Volumes, too, may improve,” Poddar said.
Also, Higher volumes indicate better utilisations and, in turn, operating margins.
Emkay Global expects Tata Steel and JSW Steel to post operating profit margin of 9.3% (255 bps improvement from year-ago quarter) and 16.1% (flat yoy), respectively. Nirmal Bang sees Tata Steel’s operating margins at 10.2%, and JSW Steel’s at 17.7%.
Major steel firms could have gained higher market share during the quarter as several small and medium companies are shutting down due to depressed domestic demand, Poddar said.
Tata Steel is expected to post revenues in range of Rs32,640.5 crore to Rs36,903 crore and profit in the range of Rs272.6 crore to Rs733.3 crore.
“We expect Tata Steel Europe (TSE) and other subsidiaries to report Ebitda/tonne of $15 in a seasonally weak quarter. We expect steel shipments to decrease 5% yoy (up 2% qoq) to 4.1 mt.
We expect TSE margins to suppress further as lower iron ore prices will eat away certain captive iron ore benefits,” brokerage Motilal Oswal Securities said in a report. JSW Steel’s net sales are seen at Rs9,764 crore- Rs11,214.3 crore and profit between Rs324 crore amd Rs599.2 crore.
Analysts, however, continue to hold cautious view on the sector.
“Sustainable recovery in domestic demand would remain the key for change in our recommendation on the sector. We maintain our underweight stance on the sector,” brokerage Prabhudas Liladhar said in a report.