Steel Stocks Outlook for the week (06 - 10.08.2012)

[rupeedesk]

Steel Stocks Outlook for the week (06 - 10.08.2012)

Stocks of steel companies are seen trading sideways to down on subdued demand, and are likely to take cues from Steel Authority of India Ltd's Apr-Jun earnings to be announced Monday. The state-owned steel producer's net profit is seen growing 11% on year to 9.28 bln rupees on better realisations. The company's net sales are seen rising 2% on year to 110.2 bln rupees. EBITDA (earnings before interest, tax, depreciation, and amortisation) is expected to increase by 21% on year on the back of decrease in raw material costs. We expect EBITDA margin of 14%, up by 200 bps on year. This week, Bhushan Steel Ltd reported a 2% on-year fall in Apr-Jun net profit at 2.06 bln rupees mainly due to high interest payments on loans.

Over the company's 200-bln-rupee debt, its high interest and depreciation costs, which are erasing a good chunk of its profit margins. Bhushan Steel's net sales rose about 27% to 28.41 bln rupees in Apr-Jun against 22.31 bln rupees a year ago. Steel companies have been struggling with low demand due to overall slowdown in domestic economic activity. Monsoon is a seasonally weak period for steel makers as construction activities decelerate during this time. Over slowing steel demand across the country. In absence of any meaningful demand pickup as well (as) continued margin loss over last two years. Build any further stock of steel due to increasing inventory in the system, and lack of project demand visibility. Delay in government project announcements is a key reason for lack of demand visibility.

While hope of project capex revival lingers by October, clearly we are moving through a tricky inventory de-stocking cycle, which can lead to erratic price movements. The prices of both long and flat products in eastern parts of India have dropped by 2,000 rupees per tn over the last three months. In Mumbai, hot rolled and cold rolled steel prices have dropped by 1,000 rupees and 200-500 rupees per tn respectively, over the last 15 days. Shutdown of Maruti Suzuki Ltd's Manesar facility has also affected the demand for flat steel products.

By RUPEE DESK

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