Q3FY11 preview: Metals picking up, capital goods to do better, GRMs up for oil & gas, lower PLF in power, good growth in pharma

METALS

Steel demand and prices only picked up in late December after trending down in October and November. Iron ore and coking coal prices are expected to rise going forward. So, steel makers are expected to keep on increasing prices at least to compensate for the higher costs of production. For now demand also looks good–so players are expecting volume growth as well. It must be said that the season has not started on a good note for steel, as SAIL came out with disappointing results due to higher than expected cost increases which were not compensated by the price hikes that it had made.

Prices of non-ferrous metals were higher this quarter and will drive earnings of companies. Zinc prices were up 14% quarter-on-quarter and 4% year-on-year in the December quarter; aluminium prices were up 12% quarter-on-quarter and 16% year-on-year in the December quarter; and copper prices were up 18% quarter-on-quarter and 28% year-on-year in the December quarter.

TATA STEEL

Overall realisations and volumes will be only slightly higher. The margins for Corus could be squeezed due to lower European steel prices and higher raw material costs, volumes could also decline. In fact Corus’s EBITDA/tonne could actually fall.

Rs million

Dec 2009

Sep 2010

Dec 2010

Net sales

63,749

71,068

73,133 –73,423

Net profit

11,755

13,651

15,765–16,505

 

Consolidated net sales @ Rs245,617 million-Rs271,081 million

Consolidated net profit @ Rs6,017 million-Rs12,585 million

 

HINDALCO

Aluminium will drive performance with a volume increase of more than 10%. Copper volumes are expected to decline due to a breakdown of cooling towers at the company’s sulfuric acid plant. Blended realisation of both aluminium and copper are expected to be around 10% higher. The big story in Hindalco remains its three-fold expansion to 1.7 million tonnes per annum over five years. Its Utkal refinery project is expected to be commissioned in July 2011. (The Utkal alumina project is a greenfield project of a wholly-owned subsidiary of Hindalco. This is a 1.5 mtpa alumina refinery at Rayagada, Orissa.)

 

Rs million

Dec 2009

Sep 2010

Dec 2010

Net sales

54,743

58,599

48,749–64,708

Net profit

4,841

4,558

4,805–5,729

 

Consolidated net sales @ Rs177,820 million-Rs178,818 million

Consolidated net profit @ Rs7,364 million-Rs8,855 million

 

STERLITE INDUSTRIES

Better prices and volumes are expected to drive growth for Sterlite. The first unit at Jharsugda is expected to be capitalised this quarter. Sterlite Energy (600MW) will probably not contribute to profits in the quarter.

 

Rs million

Dec 2009

Sep 2010

Dec 2010

Net sales

67,467

60,844

69,517–76,031

Net profit

10,049

10,080

10,251–17,052

 

 

AUTOMOBILES

 

Volumes for the sector were strong. However, margins are likely to feel the impact of higher costs, although this may be cushioned somewhat by the price hikes undertaken. The industry faces headwinds in terms of higher fuel costs and hardening interest rates.

 

<<INSERT AUTO VOLUME CHART>>

 

TATA MOTORS

Consolidated margins could rise year-on-year (due to a richer mix, that is higher commercial vehicles in the mix), but standalone could be down. Standalone volumes are up by about 13%. Domestic growth would be driven by 30% volume growth for commercial vehicles; volumes for Jaguar Land Rover are expected to grow by 10%.

 

Rs million

Dec 2009

Sep 2010

Dec 2010

Net sales

260,443

287,820

292,330–320,830

Net profit

8,128

20,882

20,225–24,922

 

MAHINDRA & MAHINDRA

Overall volume growth is expected to be around 25%, largely driven by tractors and utility vehicles. Whle margins may fall a bit, realisations could be slightly up year-on-year.

 

Rs million

Dec 2009

Sep 2010

Dec 2010

Net sales

44,787

53,113

58,492–62,038

Net profit

4,243

7,273

6,098–7,129

 

MARUTI SUZUKI

Volumes up by more than 25% driven by domestic sales. Realisations could be flattish with no price hikes in the quarter. Margins will decline sharply on higher royalty, material costs and product mix. Forex exposure will result in volatility.

 

Rs million

Dec 2009

Sep 2010

Dec 2010

Net sales

75,029

91,473

94,269–96,033

Net profit

6,875

5,982

5,422–6,221

 

HERO HONDA

Volume growth is at almost 25%. Realisations will be up year-on-year, but not by much. Margins will decline a bit.

 

Rs million

Dec 2009

Sep 2010

Dec 2010

Net sales

38,144

45,113

48,879–51,505

Net profit

5,358

5,056

5,097–6,380

 

BAJAJ AUTO

Both two- and three-wheeler volumes have improved by around 16-20%, but volumes are lower than that the last four-quarter average of 40%. Year-on-year realisations will be higher. Margins will be lower with a lower contribution from three-wheelers.

 

Rs million

Dec 2009

Sep 2010

Dec 2010

Net sales

32,956

43,418

41,002–42,220

Net profit

5,073

6,821

6,122–6,453

 

CAPITAL GOODS

The last two quarters are normally strong for engineering companies, so strong execution is expected. However, margins may fall with a rise in raw material prices and there could be some issues in terms of order booking.

 

LARSEN & TOUBRO

Q3 orders intake so far stands at Rs74 billion. Margins could be flattish to negative.

Rs mn

Dec 09

Sept 10

Dec 10

Net sales

80,714

92,608

96,674 – 107,234

Net profit

6,103

6,941

7,294 - 7,906

 

BHEL

Execution is expected to be steady – driving a 20% plus revenue growth. Margins could fall a bit.

 

Rs mn

Dec 09

Sept 10

Dec 10

Net sales

71,003

84,907

85,914 – 91,942

Net profit

11,096

11,423

12,238 – 14,893

 

OIL & GAS

For the December quarter, Singapore gross refining margins (GRMs) were up 31% quarter on quarter and up 90% year on year at $5.5 per barrel. Polyester margins were up 15%. Polymer spreads were down about 3%.

Under recoveries in the system are expected to rise with rising crude. In the September quarter, the government gave ONGC around Rs 130 billion as subsidy for 1HFY11. At an average brent rate of $81 per barrel and the forex rate at Rs 45.5, the total under-recoveries for this year could be Rs 639 billion (Motilal estimates).

RELIANCE INDUSTRIES

KG gas production was low at around 55 mmscmd. But GRMs were up and petrochemical margins are expected to be higher contributing to growth.

 

Rs bn

Dec 09

Sept 10

Dec 10

Net sales

568.6

574.8

542.8 – 692.3

Net profit

40.1

49.2

49.9 - 52.5

 

ONGC CORP

 

Gross realisations are expected to be up both on year and on quarter and could be almost $90. Net realisations could be around $65. Hike in APM gas prices will continue to help.

 

Rs bn

Dec 09

Sept 10

Dec 10

Net sales

153.1

181.9

149.6 – 189.2

Net profit

30.5

49.9

43.3 - 65.9

 

User

Monday’s Market Preview: Flat-to-positive opening likely

Global cues indicate a flat-to-positive opening for the Indian market today, however, domestic earnings will be keenly watched for further direction. Software giant TCS, will post its December quarter earnings on 17th January, followed Wipro and Reliance Industries’ third quarter numbers on 21st January. 

The US market closed on a positive note on Friday on good earnings and economic indicators. The Asian pack was mixed in early trade, weighed down by the Chinese rate increase, announced on Friday. The SGX Nifty was up 15 points at 5,660 from its previous close of 5,645.

The Indian market closed lower for the second week in a row on the back of a massive pull-out by institutional investors, worried that the Reserve Bank of India (RBI) could increase interest rates to try and curb soaring inflation. Results announced by some heavyweights this week were marginally down from the previous quarter, but lower projections for the fourth quarter put a strain on the stocks. Overall the market closed the week with a loss of 4%, its worst weekly loss since May last year. The Sensex plunged 831.37 points and the Nifty declined 250.05 points.

Markets in Asia were mixed in early trade on Monday, weighed down by the Chinese rate increase announced on Friday, after the regional markets closed for trade. The People’s Republic Bank of China raised lenders' required reserves on Friday for the fourth time in over two months in a bid to curb rising prices. The 50-basis-point increase, effective from 20th January, will raise the reserve requirement ratio (RRR) for China's biggest banks to a record high of 19.5%. On the other hand, Japan’s benchmark index—Nikkei 225— was up on optimism in the US economy.

The Shanghai Composite tanked 0.92%, the Hang Seng was down 0.06%, the Jakarta Composite and the Straits Times shed 0.03% each and the Taiwan Weighted declined 0.52%. On the other hand, the KLSE Composite gained 0.15%, the Nikkei 225 rose 0.36% and the Seoul Composite was up 0.14%.

The US markets bounced back on Friday on the back of decent earnings reports from the financial stocks and the report of a rise in retail sales. JP Morgan reported that its income soared 47% in the fourth quarter. The Labor Department reported that consumer prices rose 0.5% last month, the largest increase since June 2009. However, 80% of the increase was due to higher gas prices, meaning that the risk of widespread inflation remains low.

In a separate report, the Commerce Department said retail sales rose in December for the sixth month in a row, driven by automobile and furniture sales. The National Retail Federation said Friday that US retailers enjoyed their best holiday sales in six years, rising 5.7% for a total of $462 billion in sales over November and December. 

The Dow advanced 55.48 points (0.47%) to 11,787.38. The S&P 500 gained 9.48 points (0.74%) to 1,293.24 and the Nasdaq rose 20.01 points (0.73%) to 2,755.30.

The US markets will be closed today for a local holiday.

Back home, the Securities and Exchange Board of India (SEBI) is considering higher allocation of public offer shares for mutual funds in a bid to increase retail investors' participation in stock market. Initial and follow-on public offers have traditionally been a preferred route of stock market investment for mutual funds, but they do not get enough shares these days because of a surge in demand from foreign institutional investors.

Currently, all the Qualified Institutional Buyers, which includes a whole range of institutional investors including mutual funds, are together allocated 50% of shares being sold through IPOs and FPOs. But, there is no direct reservation for mutual funds (MFs).

Meanwhile, Anil Ambani on Sunday claimed that his two group firms—Reliance Infra and RNRL—settled the SEBI probe voluntarily and the regulator has not imposed any ban on the companies or their directors from participation in the capital market. Contesting media reports that the market regulator had barred two group firms and its directors from dealing in the capital market, Mr Ambani said, “SEBI has not banned R-Infra, RNRL, Anil Ambani, other directors from capital markets or from stock markets.”

Mr Ambani's clarification comes in the wake of SEBI passing a consent order on Friday to settle a probe into the alleged violation of regulations for foreign investment and unfair trade practices by Reliance Infra and RNRL.

 

User

COMMENTS

Akhilesh

6 years ago

http://www.slideshare.net/dabbot/sebi-co... - Read the real story

REPLY

Anil

In Reply to Akhilesh 6 years ago

Dear Akhilesh..dont fool people, we know you work for ADAG too. Here is the "real" consent order from SEBI.
http://125.18.26.195/consentorders/relin...

Mesa

6 years ago

Let all know what exactly happened, did Reliance surrender or SEBI imposed penalty. SEBI must speak out the details.

Weekly Market Report: Further downside, but watch 18,500

The Indian market closed lower for the second week in a row on the back of a massive pull-out by institutional investors, worried that the Reserve Bank of India (RBI) could increase interest rates to try and curb soaring inflation. Results announced by some heavyweights this week were marginally down from the previous quarter, but lower projections for the fourth quarter put a strain on the stocks.

Last week, we had said that the Sensex may go down by another 1,000 points. It ended the week down 831 points. In fact, the upmove that started on 6th March was seriously damaged on Friday, with the Sensex crashing below 19,000 and Nifty below 5,900, following continuous selling by foreign investors. Friday’s move is significant because for the first time since the rally began in March 2009, the indices have made a lower top and a lower bottom.

The recent top at 20,664 (6,181 in Nifty) was lower than the previous top of 21,108 (6,338) while Friday’s low of 18,812 (5,640 in Nifty) is lower than the previous low of 18,954 (5,690). In fact, the indices are now trading at a level that is very close to the end of the two-year bull market. There will be short rallies, but unless the recent highs are crossed, the decline will continue after bouts of rallies. The breach of 19,000 has been seriously damaging for the bulls.

The market was down on Monday, following across-the-board selling and all sectoral indices ended in the red. A mixed opening and choppiness were the main features of trading on Tuesday. Bargain hunting at lower prices helped the indices recover from the day’s lows, but the market ended lower for a sixth consecutive day.

Positive global cues supported a green opening on Wednesday, but a sharp fall in industrial output numbers for November dragged the indices lower for some time. Institutional buying late session, ensured a positive close.

Lower-than-expected third quarters results declared by IT bellwether Infosys Technologies before the opening bell on Thursday, put pressure on the market throughout the day. The weekly food inflation figures added to the woes and forced the government to assure more steps to curb rising prices.

The Sensex fell below the 19,000 mark on a bout of institutional selling in the last half-hour of trade on Friday, to its lowest close since 9 September 2010. Earlier in the day, the higher wholesale price-based inflation for December put pressure on interest-sensitive sectors like banking, realty, metal and auto.

Overall the market closed the week with a loss of 4%, its worst weekly loss since May last year. The Sensex plunged 831.37 points and the Nifty declined 250.05 points.

Bharti Airtel (up 1%) was the only gainer on the Sensex in the week. Sterlite Industries and Mahindra & Mahindra ended flat, while HDFC Bank (down 9%), Jaiprakash Associates (down 8%) and Larsen & Toubro (down 7%) were the major losers in the week ended 14th January.

All sectoral indices closed in the red with BSE Capital Goods (down 6%) and BSE Realty (down 5%) leading the losers.

Inflation shot up to 8.43% in December from 7.48% in the previous month, as prices of certain food and non-food items continued to show an upward trend. After moderating somewhat in November, the overall inflation—measured on the basis of wholesale prices—rose in December, as vegetables like onions, and other protein-based items became expensive.

With inflation showing no signs of moderating, it is widely expected that the RBI will raise key policy rates at its quarterly review of monetary policy on 25th January.

Industrial growth plunged to an 18-month low of 2.7% in November 2010 from over 11% recorded in the previous month. The sharp deceleration in November figures was because of a mere 2.3% growth in manufacturing, which constitutes around 80% of the Index of Industrial Production (IIP), which measures the expansion in factory production.

Food inflation declined, but stayed at an elevated level of 16.91% for the week ended 1st January, prompting the government to assure more steps to rein in prices of essential items. Even as food inflation showed a meagre decline, vegetable prices were up 3.84% during the week, with onion prices rising by 1.73%.

On the corporate front, the third quarter results of Infosys, the country’s No.2 services exporter, lagged expectations, pulling the stock down nearly 5% on Thursday. The company’s Q3FY11 net profit at Rs1,780 crore and net sales at Rs7,106 crore were at the lower end of expectations of the market. Volume growth at just around 3% was lower than the 6%+ expected and its revenue guidance for FY11 at $6.04-6.06 billion and an EPS of Rs118.68-Rs118.90 were also below expectations. Analysts had estimated an EPS of Rs120 EPS.

With no major economic triggers expected next week, investors will be keenly watching corporate results to place their bets on the markets. Besides, participation of institutional investors will also guide the market going forward.

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