Q3FY11 preview: Metals picking up-I

As the rush of third quarter results picks up this week, we take a look at how the big names in some major sectors are expected to fare. This is the first part of a three-part series

Some big companies in some of the major sectors will come out with Q3 results in the next couple of weeks. The market is already down and how these biggies perform could have a significant influence on the trend this week. Overall, increasing input costs are already impacting margins and any increase in the cost of funds, or an interest rate hike could result lead to lower demand from consumers, particularly in autos and consumer goods.


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 well for the steel sector, with SAIL announcing disappointing results due to higher-than-expected cost increases that have not been made up for by the price hikes which the company has undertaken so far.

 

 

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

 Tata Steel

Overall, realisations and volumes will be only slightly higher for the world's No.7 steelmaker . The margins for its European unit Corus could be squeezed due to lower 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 10

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
The company is expected to register a volume increase of more than 10% for aluminium. But copper volumes are expected to decline due to a breakdown of cooling towers at its 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 the company. This is a 1.5 mtpa alumina refinery at Rayagada, Orissa.)
 

Rs million

Dec 09

 Sep 10

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 the non-ferrous metals producer. The first unit of its coal-based power plant at Jharsuguda, in Orissa, is expected to be capitalised this quarter. However, Sterlite Energy (600MW) will probably not contribute to profits in the quarter. 

Rs million

Dec 09

Sep 10

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.

Tata Motors
Consolidated margins for the automaker could rise y-o-y (due to a richer mix, with a higher number of commercial vehicles), 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 its Jaguar Land Rover unit are expected to grow by 10%. 

Rs million

Dec 09

Sep 10

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. While margins may fall a bit, realisations could be slightly up y-o-y. 

Rs million

Dec 09

Sep 10

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 for the country's biggest passenger car maker are up by more than 25%, driven by domestic sales. Realisations could be flattish with no price hikes in the quarter. Margins would decline sharply on higher royalty, material costs and product mix. Forex exposure will result in volatility. 

Rs million

Dec 09

Sep 10

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 for the biggest two-wheeler maker is at almost 25%. Realisations will be up y-o-y, but not by much. Margins would decline a bit. 

Rs million

Dec 09

Sep 10

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 the last four-quarter average of 40%. Year-on-year realisations will be higher, but margins will be lower with a lower contribution from three-wheelers. 

Rs million

Dec 09

Sep 10

Dec 2010

Net sales

32,956

43,418

41,002–42,220

Net profit

5,073

6,821

6,122–6,453

 (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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Q3FY11 preview: Capital goods to do better, GRMs up for oil & gas, lower PLF in power-II

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

Steady execution is expected to drive a 20%+ revenue growth. However, 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% q-o-q and up 90% y-o-y 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 (million metric standard cubic metres per day). But gross refining margins (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

Gross realisations for the oil explorer are expected to be up both on year and on quarter and could be almost $90. Net realisations could be around $65. The 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


GAIL India
Gas transmission volumes for the public sector gas distributor are expected to be higher y-o-y and marginally higher q-o-q. Transmission tariffs are also expected to be higher.

Rs mn

Dec 09

Sept 10

Dec 10

Net sales

61,880

81,041

68,537 – 86,402

Net profit

8,599

9,235

8,016 - 12,187

Cairn India

Cairn's earnings are expected to rise substantially over the December quarter, as well as the coming quarters, with rising output from its Rajasthan block.

Rs mn

Dec 09

Sept 10

Dec 10

Net sales

4,955

26,864

27,299 - 34,381

Net profit

2,910

15,851

15,810 - 19,946

POWER

Merchant power will likely suffer a negative impact due to lower spot prices. All-India generation is up around 5% for thermal, 11% for hydro, and 4% for gas-based plants. Power deficit is down by about 7%, for a fourth consecutive month. While there has been generation growth due to capacity addition, plant load factors have shown a negative trend.

NTPC

There have been delays in commissioning new capacity by the power utility. Consequently, generation growth could be moderate.

Rs mn

Dec 09

Sept 10

Dec 10

Net sales

111,837

147,526

131,754 - 45,388

Net profit

22,550

21,074

18,863 - 23,734


Tata Power

Haldia and Trombay will suffer due to lower merchant tariffs. Higher costs of fuel (coal) will eat margins. 

Rs mn

Dec 09

Sept 10

Dec 10

Net sales

15,665

15,708

15,933 – 17,764

Net profit

1,479

2,517

1,081 – 2,008


FMCG
Sales growth for consumer goods producers is expected to be volume driven. Raw material costs will put pressure on margins. The competition for marker share is intensifying.  

ITC
Cigarette volumes may rise a bit; they were down 2% in the first half, due to a sharp 16.5% increase in excise duty and price hikes of up to 15%. FMCG business losses could be flat q-o-q.

Rs mn

Dec 09

Sept 10

Dec 10

Net sales

45,802

51,472

51,648 - 54,684

Net profit

11,442

12,467

12,596 – 13,915

Hindustan Unilever Volume growth for the country's largest household products and consumer goods maker is estimated in the lower teens. Price increases for palm oil and tea may hit margins in Q3; higher input costs for LAB and HDPE could hit in the next quarter. The company has not increased prices despite the increased raw material costs.

Rs mn

Dec 09

Sept 10

Dec 10

Net sales

45,732

47,647

48,646 – 51,185

Net profit

5,990

5,257

5,801 – 6,596

 (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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Q3FY11 preview: Good growth in pharma-III

As the rush of third quarter results picks up this week, we take a look at how the big names in some major sectors are expected to fare. This is the concluding part of a three-part series

PHARMACEUTICALS

Good topline growth is expected. Contract research and manufacturing companies would not have done very well. MNC pharma companies will do slightly better than the big four Indian generic companies. 

Dr Reddy’s Laboratories

The branded generics and regulated markets business is expected to come strong for the country’s No.2 drug maker by sales. This segment of its German operation suffered losses in the previous corresponding quarter. The December quarter should see some gain in market share in Prevacid, Allegra and Prograf generic sales in the US. 

Rs million

Dec 2009

Sep 2010

Dec 2010

Net sales

17,296

18,704

19,106–19,860

Net profit

5,217

2,456

2,379–3,313

Sun Pharmaceuticals

The company’s topline will gain substantially from its subsidiary Taro. Domestic formulations and exports will probably grow by around 13%. Taro is expected to cause a sharp margins decline. 

Rs million

Dec 2009

Sep 2010

Dec 2010

Net sales

10,209

13,701

13,838–19,332

Net profit

2,575

4,107

2,712–4,823

Cipla  

Rs million

Dec 2009

Sep 2010

Dec 2010

Net sales

14,385

16,154

15,439–16,204

Net profit

2,890

2,630

2,519–3,075

Lupin

Formulations and growth from advanced markets such as Japan should be substantial. The US generics business should sustain strong momentum (branded business revival, especially Antara, would be key to growth). The domestic business will be helped by steady new introductions. 

Rs million

Dec 2009

Sep 2010

Dec 2010

Net sales

12,554

14,051

14,274–15,351

Net profit

1,606

2,150

2,144–2,533

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