Quarterly results to reflect strong steel prices and robust demand
Expect a strong quarter driven by higher steel prices and strong demand: Indian steel companies should see a strong Q4FY12, driven by higher steel prices and robust demand growth.
At the same time steel demand growth has remained robust at close to 10%, which should lead to strong volumes for steelmakers. We expect SAIL to record sales of 3.2m tonnes (up from 2.63m tonnes in Q3FY12), Tata Steel at 1.77m tonnes in Q4FY12 (up from 1.62m tonnes in Q3FY12). However JSW Steel?s volumes should remain under pressure at 2m tonnes as the iron ore shortage scenario has persisted and the company has not been able to ramp up further from last quarter.
Marginal benefits from lower coking coal prices, weak INR should keep costs elevated: Coking coal contract prices for Q4FY12 have fallen to $235/t; however benefits of lower prices would follow with a lag and we expect just marginal benefits during the quarter. At the same time a weak INR would also keep coking coal costs high.
INR has appreciated from Q3 levels?expect some reversal of forex losses booked earlier: INR has appreciated by close to 4% from Q3FY12 levels, and this may lead to some reversal of forex losses booked during previous quarters. We expect a R1.5bn reversal at SAIL and R2bn for JSW Steel.
As a result we expect Ebitda/t of R7,482/t (up from R6,572/t in Q3FY12) and total Ebitda of R24bn. Sales volume of 3.2m tonnes, realisation up by R1200/t in Q4FY12.
Expecting marginal falls in raw material costs?however reported costs may be higher due to sales from inventory. Expect provisioning of R3.5bn for wage cost revisions, with total employee cost of R22bn for Q4FY12. Total Ebitda at R24bn and net profit of R16.2bn (including forex loss reversal of R1.5bn on INR appreciation from Q3FY12).
Tata Steel: expect a moderate quarter; steel price benefits won?t be realised fully during the quarter: Indian operations would be adversely impacted by forward cover on INR, which should result in forex losses; however we expect Ebitda/t at R16,499, marginally up q-o-q. Please note that the company has indicated that it had taken a forward cover on INR at a USD/INR rate of 53, which would lead to forex losses during the quarter. At the same time coking coal price benefits would come with a lag and hence in Q1FY13 only.
Expect sales volume of 1.77m tonnes in India and 3.6m tonnes at European operations. Expect Indian Ebitda at R16,499/t and European Ebitda at $41/t?as steel price benefits wont fully come during the quarter. Estimate standalone Ebitda at R29.2bn and consolidated Ebitda of R36.4bn? it should translate into net profit of R16.7bn at standalone operations and R10bn for consolidated operations.
JSW Steel: steel prices to help but volumes still under pressure: JSW Steel?s production was impacted by lower grade iron ore and the ban in Karnataka continuing. Therefore, we expect sales volume to remain close to 2m tonne (from 1.9m tonne in Q3FY12). However with higher steel prices and marginal benefits of falls in raw material prices, we expect Ebitda/t to improve to R7,371 (from R6,565 in Q3FY12).
Sales volume of 2m tonne as production continues to be impacted by iron ore issues, realisation increase of R800/t q-o-q. Ebitda/t of R7,371 and total standalone Ebitda of R14.7bn & net profit of R6.3bn (including forex loss reversal of R2bn). We expect JSW Ispat to report R1.3bn of losses and hence consolidated profit should remain under pressure at R5bn.
Sesa Goa: expect a weak quarter, higher export duty and lower volumes to keep up the pressure: Q4FY12 should remain a weak quarter for Sesa Goa as the mining ban continues in Karnataka and even Goa volumes should be down 11% y-o-y to 5.2m tonnes on account of logistics issues.
Sales volume is at 5.2m tonnes (down from 6.7mtpa in Q4FY11), realisations are flat q-o-q at R4,700/t.
Export duty increased to 30%?total outgo expected at R6.7bn vs R4.4bn in Q3FY12. Ebitda at R10.7bn, is down from R11bn in Q3FY12. Net profits of R11.7bn includes R4.46bn from its 20% stake in Cairn India.