After a brief lull, Indian steel companies are now ready to cash in on the recovery in global steel prices. Captive iron ore reserves and the rising domestic demand for steel will place companies like Tata Steel, SAIL and JSW, the top three Indian steel firms, in a better position, market watchers said.
?Steel demand and prices have recovered after a fall during October-December 2008 owing to economic turmoil. The demand has now recovered and is growing by 8-10%. Steel prices have also recovered by around 30-40% from the bottom,? said Pawan Burde, vice-president (research) of Mumbai-based market watcher, PINC Research.
The current trend is likely to result in the top steel firms posting better figures in the third quarter of the current fiscal. ?The quarter will be very good for the steel companies because of strong volume growth and better year-on-year prices. The low base during October-December 2008 due to recession would also translate into hefty quarterly growth in earnings for Indian steel companies,? Burde said. He also noted that steel firms have started benefitting because of recovery in auto and infrastructure segments.
?During the quarter, the margins of steel companies are likely to grow,? said Paresh Jain, an analyst with another Mumbai-headquartered broking firm, Angel Securities, which has put a buy rating on Tata Steel and JSW and a neutral rating on SAIL.
Sales and production of top steel firms increased to attractive levels in the quarter. To cash in on the present boom, all companies have increased prices by 3-5% in the past one month, Burde said. Tata Steel has reported good volumes in production in the third quarter. The company posted a 49% year-on-year increase in sales while its crude steel production climbed by 15%. Hot metal production was up by 11%.
According to Burde, Tata Steel is expected to report a 19.5% y-o-y increase in revenues because of a 38% y-o-y growth in sales volume. The operating profit is expected to jump by around 34% y-o-y due to higher volumes and lower input costs. The net profit is expected to increase by 100% y-o-y.
According to estimation of Angel Securities, net sales of Tata Steel would jump by 14.2% to Rs 5,485 crore while net profit is expected to climb by 73.8% to Rs 810 crore.
JSW Steel has reported increased production in all the categories. ?JSW is expected to report a 51% y-o-y increase in revenues on account of 93% increase in sales volume. The operating profit is expected to jump by around 156% on the back of higher volume and lower input costs. The company would report a profit of Rs 376 crore in Q3FY10 as against a loss of Rs 127 crore a year ago,” Burde added. According to Angel, JSW’s net sales would climb by 36.2% to Rs 4,453 crore, while profit would touch Rs 282 crore.
The firm also projected a 7.4% increase in net sales of SAIL at Rs 9,725 crore and a 34.9% jump in profit at Rs 1,137 crore. According to Burde, SAIL is expected to report a 13.5% y-o-y increase in revenues owing to a 23% rise in sales volumes. The operating profit is expected to jump by around 128% due to higher volumes and lower input costs. Net profit is expected to increase by 94% during the third quarter.