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  • Sector alert: Metals and mining

    Publish date: July 11, 2018

    First quarter FY2019 review: Good for most

    The metal and minings sector is expected to announce a largely positive quarterly earnings reports. While companies dealing in steel and aluminum are expected to see a jump in their earnings, those primarily dealing with zinc and lead would be on the other side of the fence.

    Key Highlights

    • Steel companies are expected to announce an increase in their earnings due to high domestic steel demand and high prices. The demand for steel grew by 8.5% between April and May; the domestic prices for steel went up by 3-4%.
    • The steel companies are also expected to see a jump in their export collection due to rupee depreciation.
    • Meanwhile, coking coal and iron-ore prices are expected to go up, thereby raising the costs.
    • It’s been a mixed for non-ferrous companies: aluminum prices increased by 4% quarter over quarter (qoq), but zinc and lead prices slid by 4-5%.

    Companies in focus

    Tata Steel: EBITDA to increase by 10% qoq due to high steel prices. Expect Europe EBITDA to rise too.

    JSW Steel: EBITDA earnings to decline by 6%, net earnings declined by 28% qoq.

    Jindal Steel and Power: Consolidated EBITDA to increase 4% qoq. Meanwhile, Jindla Power EBITDA is set to go up by 22%.

    National Mineral Development Corporation: EBITDA will see a sharp decline of 40% due to weak sales.

    Vedanta: EBITDA to decline by 15% qoq due to shutdown of copper smelting and iron ore operations.

    Hindustan Zinc: EBITDA to plunge by 14% due to losses made in metal hedging.

    Hindalco: EBITDA to shoot up by 21% mainly due to high aluminum prices.

    Valuation & outlook

    We maintain a positive outlook on aluminum and prefer stocks of Hindalco and Vedanta.

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