Companies & Sectors
JSW Steel to again hike prices in February due to rising input cost

Steelmaker cites rising input costs and increased cost of production for this proposed move; the company will also pass on the hike to consumers

JSW Steel Limited, India's third-largest steel producer, will increase its product prices in the next month in the wake of rising input costs, a senior official of JSW Steel told Moneylife.

"We raised our product prices in the first week of January, while our spot market prices were also increased marginally. We will go for another price hike in February," said Jayant Acharya, director, commercial and marketing, JSW Steel.

However, Mr Acharya refused to disclose the quantum of the hike.

"We would be in a position to pass on the hike to our consumers," added Mr Acharya.

The company's consolidated profit for the third quarter ended December plunged by 32% to Rs2.92 billion compared with Rs4.30 billion during the same quarter of the previous year, due to higher input costs.

"Production cost in the quarter increased by around 30% as prices of raw materials, mainly coking coal, surged in the international market. However, prices of steel increased by around 13% and that hurt our net profit," said Seshagiri Rao, joint managing director, JSW Steel.

However, the Sajjan Jindal-led company managed to register growth in production and net sales. The company's crude steel production rose 11% to 1.64 million tonnes (MT), while net sales were up by 26% to Rs57.51 crore.

The company also plans to set up a 2.3MT/annum cold-rolling mill complex at its Vijaynagar plant (in Karnataka) to grab growing demand for flat products from the auto sector.

JSW Steel will invest Rs40.25 billion for this project. The steelmaker says that Rs13.50 billion will be raised through internal accruals, while Rs26.75 billion will accrue from debt.

The first phase of this project is scheduled to be completed by June 2014; the second phase is expected to be completed by June 2015.

JSW Steel will take technical assistance from Japan's steel major JFE for the project.

The company said its expansion programme to increase annual production capacity at Vijaynagar from 7.8MT to 11MT by March this year is "on schedule".

In the next fiscal, the company will require 7MT to meet higher production targets. Currently, it needs 5MT of coking coal, annually. However, the shipments of the commodity have been impacted due to the floods that have swamped Queensland, Australia.

"Not every mine and port has been hurt due to the floods. There are a few mines and ports that have not been affected. But yes, shipments have slowed down," said Mr Acharya.

JSW Steel imports around 100% of its coking coal requirements-most of it comes from Queensland.

Talking about the acquisition of Bellary Steel and Alloys Limited, Mr Rao said, "We have made payments and the matter is in court."

But Mr Acharya added, "It's a small technical matter, and we hope that it will be sorted out quickly."

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Q3FY11 analysis: PNB asset quality under pressure, RIL strong margins, Wipro profit lags rivals

Punjab National Bank’s reliance on bulk deposits continues to be a worry; Reliance Industries’ higher profits due to higher other income somewhat disappointing; Wipro sees model volume growth, flat margins

Punjab National Bank (PNB)

Asset quality continued to be under pressure. While net interest income (NII) was at the higher end of expectations, profit was at the lower end, mainly because of the sharp rise in loan loss provisions (up 1.5 times year-on-year) and higher than expected provisions for pension and gratuity liabilities.

PNB’s reliance on bulk deposits continues to be a worry and so does the falling CASA ratio (down to 39% from 41% in the September quarter). These factors coupled with a sharp rise in deposit rate are estimated to lead to a margin contraction. Loan growth is also expected to moderate due to a delay in infra projects (this has been the fastest growing area for the bank).

PNB restructured an additional Rs800 crore of loans, which make up 6.5% of the total loans. Incremental delinquency has been higher than last year. For the nine months ended 31st December it is around Rs3,100 crore compared to Rs2,000 crore in the corresponding period last year.

The bank has assumed its total pension liability due to the second pension option at Rs3,600 crore and expects to provide for this over the next five years. Therefore, annually, the charges work out to Rs720 crore.

Punjab National Bank Q3 FY11 highlights

Rs crore

Dec 2009

Sep 2010

Dec 2010

Net interest income

2,212.3

 2,976.7

 3,203.3

Employee expenses

832.7

 1,113.1

 1,223.5

Provisions

281.9

 516

 713.9

Net profit

1,011.3

 1,074.5

 1,089.8

NIMs %

3.6

4.1

4.1

Gross NPLs

3,155.6

 4,024.8

 4,541.1

Gross NPLs %

1.8

1.9

2.0

 Over a three-month period PNB’s share price is down 12% compared to a 4% Sensex fall. Over a month the share (down 6%) has underperformed the Sensex (down 4%).

 Reliance Industries

Reliance’s net sales and net profit were at the higher end of expectations. However, it’s somewhat disappointing that the profits were higher on account of higher other income and lower tax.

The management has indicated that KG-D6 gas output may not rise significantly in the near term. Brokers who haven’t already done so are revising FY12-13 output levels to 50-55 mmscmd. While gas production from the MA field has ramped up to 7-8 mmscmd (largely in line with expectations) production at the more important D1-D3 fields has fallen to 44 mmscmd. RIL had estimated that it would achieve a peak of 80 mmscmd. Brokers now assume the peak to be achieved in FY14 which is a severe setback.

As expected, petrochemical volumes and margins were strong. Crude throughput was good at 16.1mt cf and gross refining margins were also strong at $9/bbl. Since gas is now not going to be a major earnings driver, refining margins will be back in focus. RIL will need to maintain its refining margins above $9 per barrel in FY12 to avoid downgrades. Petrochemical margins will also need to be strong.

Reliance Industries Q3 FY11 highlights

Rs crore

Dec 2009

Sep 2010

Dec 2010

Net sales

56,856

57,479

59,789

Net profit

4,008

4,923

5,136

 

Over a three-month period, Reliance’s shares (down 8%) have underperformed the Sensex (down 4%).  Over a month, the shares are down 8% compared to a 4% fall on the Sensex. The shares were up about 2% on the day of the results.

 WIPRO

Both IT service revenues and net profit were in line with estimates. Modest volume growth of 1.5% and flat margin in IT services despite +0.6% onsite and 3.7% offshore productivity gains were key disappointments.

More large accounts (the company now has three $100 million+ and four $90 million+ relationships) and growth of its enterprise business are positives, but the attrition rate (24% annualised) continues to be a worry.

TK Kurien’s appointment as CEO of the IT business has been taken well by analysts.

Wipro's Q3 FY11 highlights

 

Dec 2009

Sep 2010

Dec 2010

IT services revenues ($ million)

 1,127

 1,273

 1,344

Net income (Rs crore)

 1,193.6

 1,280.5

 1,309.9

 Over a three-month period, Wipro’s shares (up 3%) have outperformed the Sensex (down 4%).  Even over a month, Wipro’s shares are flat compared to a 4% fall on the Sensex.

 (This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife.)

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