Despite the obvious rationale going against it, steel and cement players in India have had a markedly subdued first quarter. Virat Bahri of B&E analyses the dynamics behind the numbers
India’s much-touted infrastructure surge makes it a market extremely hard to miss for steel and cement players. Yet, the Q1 results for both these sectors would make one wonder if this potential is actually what it is made out to be. B&E analyses the results closely for a more objective view.
In fact, steel majors have had a spectacular run since January 2009 till the end of the last fiscal. But Q1 has been an anomaly. SAIL posted net profit of `11.76 billion, a drop of 11.56% y-o-y. Consolidated net profit of Jindal Steel & Power Ltd. (JSPL) was down by 3% y-o-y for the quarter while sales of steel products were down by 4%. Bhushan Steel saw a decline of volumes by 14.4% to 309,333 tonnes. JSW Steel managed to improve its turnover and net sales by 21% and 19% respectively due to improved sales mix, but semis were down by 66%. Tata Steel, however, was an exception as it posted profits of `18.25 billion over a loss of `22.09 billion for Q1, FY 2009-10. In Tata’s case, revival in European operations was a key contributor and domestic sales remained flat on a y-o-y basis.
SAIL Chairman C.S. Verma said: “Greater availability of steel worldwide coupled with pressure on demand made the market conditions quite testing.” The reasons, actually, emanate from neighbouring China that accounts for around 50% of global steel production and consumption. Monetary and fiscal tightening by China to prevent overheating of its real estate market has created oversupply situation and these products are finding their way into markets like India. Moody’s projects that prices of Chinese Hot Rolled Coils (HRC) are down by around 11% y-o-y, while rebars are down by 8% y-o-y since April.
Talking to B&E, Vinod Garg, ED, Commercial, Ispat Industries, said: “Since import prices are low, lot of material is being dumped. Excessive supply is affecting margins of all players.” Figures indicate that Chinese imports have risen to over 60% of the total. In the week ending March 12, HRC (CR-Grade) price dropped by 5% m-o-m to `32,700 per tonne. Steel imports increased by 116% y-o-y to 973 thousand tonnes in April 2010. The government, however, placed anti-dumping duty on certain stainless steel products from target countries including China in early 2010. Cyclical impact of monsoons also leads to slowdown in industrial activity and buyers tend to postpone purchases. Further, a Motilal Oswal report expects more margin contraction, as it states, “Realisation will fall sharply in 2Q FY11 due to sharp price cut in June, while costs of coking coal will go up further.” Iron ore prices are also up by 90% y-o-y for Q1 at $117/tonne, and are likely to continue that trajectory.
The cement sector also saw pressure on both toplines and bottomlines due to oversupply. Aditya Birla Group-owned Ultratech Cement saw net sales drop by 8.3% y-o-y for Q1 to `17.93 billion and net profits falling more steeply by 41.83% to `2.43 billion. For ACC, net sales stayed flat at `21.67 billion but net profits again showed a sharp drop by 26% y-o-y to `3.49 billion. The results for India Cements were also much below expectations, with net sales falling by 7.8% y-o-y to `8.6 billion and EBITDA down by 65% y-o-y to `1 billion.
Read more....
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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IIPM strong hold on Placement : 10000 Students Placed in last 5 year
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India’s much-touted infrastructure surge makes it a market extremely hard to miss for steel and cement players. Yet, the Q1 results for both these sectors would make one wonder if this potential is actually what it is made out to be. B&E analyses the results closely for a more objective view.
In fact, steel majors have had a spectacular run since January 2009 till the end of the last fiscal. But Q1 has been an anomaly. SAIL posted net profit of `11.76 billion, a drop of 11.56% y-o-y. Consolidated net profit of Jindal Steel & Power Ltd. (JSPL) was down by 3% y-o-y for the quarter while sales of steel products were down by 4%. Bhushan Steel saw a decline of volumes by 14.4% to 309,333 tonnes. JSW Steel managed to improve its turnover and net sales by 21% and 19% respectively due to improved sales mix, but semis were down by 66%. Tata Steel, however, was an exception as it posted profits of `18.25 billion over a loss of `22.09 billion for Q1, FY 2009-10. In Tata’s case, revival in European operations was a key contributor and domestic sales remained flat on a y-o-y basis.
SAIL Chairman C.S. Verma said: “Greater availability of steel worldwide coupled with pressure on demand made the market conditions quite testing.” The reasons, actually, emanate from neighbouring China that accounts for around 50% of global steel production and consumption. Monetary and fiscal tightening by China to prevent overheating of its real estate market has created oversupply situation and these products are finding their way into markets like India. Moody’s projects that prices of Chinese Hot Rolled Coils (HRC) are down by around 11% y-o-y, while rebars are down by 8% y-o-y since April.
Talking to B&E, Vinod Garg, ED, Commercial, Ispat Industries, said: “Since import prices are low, lot of material is being dumped. Excessive supply is affecting margins of all players.” Figures indicate that Chinese imports have risen to over 60% of the total. In the week ending March 12, HRC (CR-Grade) price dropped by 5% m-o-m to `32,700 per tonne. Steel imports increased by 116% y-o-y to 973 thousand tonnes in April 2010. The government, however, placed anti-dumping duty on certain stainless steel products from target countries including China in early 2010. Cyclical impact of monsoons also leads to slowdown in industrial activity and buyers tend to postpone purchases. Further, a Motilal Oswal report expects more margin contraction, as it states, “Realisation will fall sharply in 2Q FY11 due to sharp price cut in June, while costs of coking coal will go up further.” Iron ore prices are also up by 90% y-o-y for Q1 at $117/tonne, and are likely to continue that trajectory.
The cement sector also saw pressure on both toplines and bottomlines due to oversupply. Aditya Birla Group-owned Ultratech Cement saw net sales drop by 8.3% y-o-y for Q1 to `17.93 billion and net profits falling more steeply by 41.83% to `2.43 billion. For ACC, net sales stayed flat at `21.67 billion but net profits again showed a sharp drop by 26% y-o-y to `3.49 billion. The results for India Cements were also much below expectations, with net sales falling by 7.8% y-o-y to `8.6 billion and EBITDA down by 65% y-o-y to `1 billion.
Read more....
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri's Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
