Driven by high benchmark prices, increased volumes and high by-product realisation, two major metal producers, Sterlite Industries and Hindalco Industries, have posted top line and bottom line growth during the first quarter ended June 30, 2010.

Experts believe that Aditya Birla group firm Hindalco will benefit from its aluminium expansion plans, where it will spend around Rs 23,000 crore over three years, low production cost at its new capacities and an expected turnaround at Novelis.

Sterlite is set to gain from Balco settlement and Hindustan Zinc call option. The grant from Niyamgiri mining clearance would further provide upside.

Hindalco’s net revenue and profit during the first quarter increased by 33% and 11% year-on-year, respectively. However, Hindalco?s Ebitda declined by 4.3% q-o-q due to 3% sequential fall in prices of aluminum and copper at LME. Ebitda margin stood at 15.5% in the quarter under review.

Morgan Stanley believes Hindalco’s new projects can help it outperform its peers in volume growth. ?In addition to project execution risk, we believe the company faces headwinds of higher leverage and tepid aluminum prices in short term,? said Vipul Prasad, an analyst with Morgan Stanley in his report.

?Hindalco has about Rs 12,000-crore debt with more than $1 billion (around Rs 4,600 cr) cash in hand,? S Talukdar, CFO of Hindalco had said.

Meanwhile, with the renewal of its long-term contracts, the risk in the Novelis?s earnings has eased out as there is a condition of price revision in the new contracts. Further, Novelis is expanding its rolling capacity in Brazil at a capex of $300 million.

Vedanta group’s Sterlite reported 50% growth in its net profit and 29% rise in sales during Q1. Sterlite’s aluminum production during Q1 declined 12.5% y-o-y to 63,000 tonne due to a complete rampdown of the Balco-1 smelter.

Sterlite?s earnings are likely to be driven by volume growth in the zinc and aluminum businesses. Zinc capacity expanded by 200ktpa to 869ktpa recently, which will drive the production of refined metal in FY2011 and FY2012. Another 100ktpa lead smelter is expected to be commissioned in FY2011, which will take total zinc and lead capacity to 1.06 mtpa.

According to experts, base metal prices have declined 10-15% from their recent peak (of end FY10) on growing concerns of slowdown in China and continued headwinds from growth concerns in EU. Production rate of base metals has increased substantially in recent months across the world. ?The current fall in LME prices have surpassed marginal cost of production of most global base metal producers. This, along with stronger growth in world economy in 2HFY11 will support the prices,? said a Motilal Oswal report.