August 28, 2022

Metal Stocks Outlook: Weak steel and aluminium price outlook to weigh

26 August 2022

Metal stocks came in a under a bit of fire this week with Nifty Metal losing 2.3% in average value over that of the previous week.

This is likely to be the scenario next week also as uncertainties around price outlook and margins play in the minds of the metal sector investors.

According to a report by Kotak Institutional Equities earlier this week the domestic steel prices have declined 20% in the last three months due to regional price weakness and that they would continue to remain under pressure given the current premium to import parity. It also said that even if export duty on steel were to be cut it will have only limited benefits.

Downside risks to prices are also seen for aluminium. The brokerage felt that current aluminium prices, which have remained range bound in last one month after seeing a sharp fall earlier, are not likely to rise as majority of smelters in Europe were running at cash losses and production curtailment announcements were starting to be made by the producers.

Headwinds in metal and mining sectors still persisted, said Edelweiss Securities in a sector update today. It said that domestic hot rolled coil price in the traders market slipped further this week "owing to high inventory at steel producers and expectations of price cuts in the first week of September."

It also pointed to a slowing demand for secondary rebars leading to a dithering in its prices.

August 26, 2022

Bayer CropScience gets nod on related trade but some shareholders oppose

24 August 2022

The results of voting on resolutions in the annual shareholders meeting of Bayer CropScience Ltd on Monday indicate that a section of non-promoter shareholders were opposed to the jump in related party transaction limit with the ultimate promoter holding company Bayer AG to 30 bln rupees from 18 bln rupees.

The ordinary resolution on related party transactions, in which promoter shareholders were not permitted to vote as per Securities and Exchange Board of India's norms, saw 20% of non-institutional public shareholders and 14.1% of institutional public shareholders vote against the proposal.

Overall, 14.1% of public shareholders who voted in the meeting were against the proposal. But since the ones voting in favour were greater than 50% the company got the approval to hike the related party transaction limit.

The shareholder approval will now enable Bayer CropScience to buy goods from, or to effect sales to, Bayer AG, along with other specified types of related party transactions for a total value of 30 bln rupees every year from 2022-23 (Apr-Mar) to 2026-27.

The company has justified the need for related party transactions with Bayer AG on the grounds that it gave access to scientific know-how and enabled it to become part of Bayer’s global supply chain.

It also justified the jump in the limit to "future growth plans.”

In terms of proportion of Bayer Cropscience's annual revenue in 2021-22 the raised related party transaction limit of 30 bln rupees amounted to 63%. It was higher at 70% in the previous financial year.

Further, the 30-bln-rupee limit was 2% of Bayer AG’s consolidated turnover in 2021 (Jan-Dec).

Earlier, Bayer Cropscience had taken shareholder approval in August 2017 to make related party transactions with Bayer AG for 18 bln rupees every year till 2021-22.

The value of related party transactions with Bayer AG in 2021-22 was 16.7 bln rupees, close to the 18-bln-rupee limit.

It indicates a likelihood of Bayer CropScience utilising the new 30-bln-rupee limit near to its full extent in the current financial year or in the following years.

In the shareholding pattern of Bayer Cropscience as of June 30, foreign promoter entities including Bayer AG, Monsanto Company and two others, and domestic promoter entities Bayer Vapi and Monsanto Investments India, together held 71.4% of the company's shares.

Bayer AG is the ultimate promoter holding company of Bayer Cropscience.

Freight rates not yet normalised, remains elevated, says Fine Organic

24 August 2022

The situation with respect to recent sharp increase in freight and forwarding expenses still remained dynamic and freight rates were not yet normalised, the chairman and managing director of Fine Organic Industries Ltd, Mukesh Shah, said in the company's annual shareholders meeting on Tuesday.

The specialty chemicals company which makes food emsulsifiers, and polymer, rubber and other additives had seen freight and forwarding expenses rise sharply in 2021-22 (Apr-Mar) "due to increase in sea freight cost brought by the shortage of containers and global supply chain disruption."

Shah said that sustainable operating margins in the future could only be ascertained later based on the next few years performance and global business environment and that the company's short term endeavour was to maintain operating margin in the range of 18-20%.

Fine Organic Industries' consolidated operating margin, as denoted by the earnings before interest, tax, depreciation and amortisation margin, went up sequentially in the June quarter to 28.7% from 25.8%. The operating profit rose 35% on quarter to 2.1 bln rupees.

The operating costs showed a sequential rise of 17% to 5.3 bln rupees, data from Informist Corporate Fundamental Database showed, but a higher increase of 21% in net sales to 7.5 bln rupees enabled the company to record an operating profit growth.

Shah said that the June quarter rise in revenue was "primarily attributed to better realization across the product segments and some increase in volumes." He pointed out that the company got some opportunities to grab upon due to global supply chain disruptions which resulted in a surge of export demand for the company's products.

Global supply chain disruption like, inadequate availability of Raw Materials,  shortage of containers and other challenges brought by macro-economic factors,  have given us some opportunities to grab upon which also resulted in surged  export demands.

The share of exports to total revenue jumped to 70% in the June quarter from 60% in the whole of 2021-22.

Fine Organic Industries, according to its recent investor presentation, exports oleochemical based additives to 75 countries and is its largest producer in India.

Shah said that the company didn't know how long the challenging global situation will remain for it exploit new opportunities in the export market.

August 25, 2022

Goa Carbon's Paradeep unit shutdown likely to last 7-10 days

23 August 2021

The maintenance shutdown at the Paradeep unit of Goa Carbon Ltd from Saturday will likely be for 7-10 days, a senior company official told Informist.
 
In a filing with the stock exchanges on Monday, the company said that the operations at Paradeep unit had been temporarily shut down for maintenance work. In a separate exchange filing on Monday the company also informed of a similar shutdown in its Bilaspur unit from Friday.
 
Goa Carbon produces calcined petroleum coke and sells to domestic and overseas aluminium and steel companies. Of its three manufacturing units at Goa, Paradeep and Bilaspur, the Paradeep unit is the biggest with an annual production capacity of 168,000 tn. The Goa unit has a 100,000 tn annual capacity while that of the Bilaspur unit is 40,000 tn.
 
The company has been regularly putting one or more of its three units under temporary shutdowns in the last few quarters.
 
Goa Carbon effects such shutdowns for maintenance work and "due to the absence of viable export and domestic orders".

The latest one in Paradeep will likely be a minor one, according to the company official. "It is also a conscious decision by the company to optimise the feed rate and also to optimize the costs; else we would not like to take a shut down," he said.

In the September quarter of last year too, the Paradeep unit was shut down for 13 days while the shutdown period in Goa unit was six days and that in Bilaspur unit was 49 days.

Longer shutdowns were taken by the company in the June quarter when the Paradeep unit was shut for 27 days, Goa unit for 76 days and Bilaspur unit for 36 days.
 
Despite the lengthy shutdown periods by Goa Carbon in the June quarter the net sales jumped 64% on the year to 2.1 bln rupees, data from Informist Corporate Fundamental Database showed.
 
The operating profit, as denoted by the earnings before interest, tax, depreciation and amortisation, rose significantly to 273 mln rupees in Jul-Sep from 45 mln rupees in the year ago quarter. The net profit too jumped to 145 mln rupees from 1.2 mln rupees.
 
Goa Carbon's customer base is dominated by Hindalco Industries Ltd and Vedanta Aluminium and Power which together account for around 80% of the company's total revenue, a report by rating agency Acuite Ratings and Research said in April.

August 13, 2022

Viscose margin Jul-Sep under pressure as China prices dn, says Grasim

12 Aug 2022

The softening in viscose staple fibre prices in China since June will make it difficult for Grasim Industries Ltd to sustain price increases taken in the June quarter and consequently put pressure on the operating margin of its viscose segment, the company indicated in a conference call with analysts and investors today.

"China being the biggest producer and consumer of VSF (viscose staple fibre) has a big influence on international prices. Since end of June, viscose staple fibre prices have started correcting in China and in India we have to adjust a little bit," the company management said.

The company was addressing analyst queries on whether the price decline of around 6-9% in China since end of June would have an adverse impact on Grasim's viscose segment margins going forward and whether the high margin levels in the segment were behind.

The company management said that in the September quarter it may not be able to effect price hikes in viscose staple fibre sales like it did in the June quarter due to the current environment in the international markets and particularly because the ongoing correction in viscose staple fibre prices in China was quite severe.

"So margins (in viscose segment) will be under pressure and will not be like in favorable quarters," the management said.

The viscose segment margin was also affected in the June quarter contracting sharply to 11.6% from 23.2% a year ago.

The operating profit, defined as earnings before interest, tax, depreciation and amortisation, of the viscose segment went up by a mere 2% on year to 5 bln rupees.

But the viscose segment revenue more than doubled to 43 bln rupees in Apr-Jun and made up for nearly 60% of total revenue.

This came on the back of a volume rise of 76% on year to 197,000 tn and improved sales realisations.

The company said that the viscose staple fibre volume growth in the June quarter was aided by around 51,000 tn contribution from its brownfield expansion at the Vilayat site.

The viscose filament yarn volume was up 34% on year to 10,300 tn in Apr-Jun.

Overall, Grasim's sales jumped 93% on year to 72.5 bln rupees in Apr-Jun while its net profit rose 68% to 8.1 bln rupees.

Metal Stocks Outlook: Global steel oversupply, weak demand to weigh

12 Aug 2022

Base metal stocks may come under pressure next week due to concerns of global oversupply in steel from surge in the metal's exports from China amid weak global demand.

Metal stock investors will also weigh the commentary made by the managements of Hindalco Industries and Steel Authority of India Ltd this week after they declared their results for the June quarter.

Aluminium and copper producer Hindalco said that it the cost of production will rise in the high teens in Jul-Sep due to the flow-through effect of high coal costs in the June quarter. It said that the current Jul-Sep quarter will likely be the company's worst quarter from the cost of production point of view because the majority of the coal problems and the high cost coal that it had to buy during May-Jun was getting consumed in the current quarter.

On the other hand, steel maker SAIL said that its imported coking coal costs were down in July to 38,000 rupees per tn from 39,500 rupees per tn in Apr-Jun. It expected the cost to come down further by 4,000-5,000 rupees per tn in the current month and further from September onwards.

But SAIL also specified that the high-priced coal inventory at the end of the June quarter is getting consumed in the current quarter and the full benefit of the coal price fall will be realised only in the December quarter.

The Nifty Metal index ended this week 4.6% higher.

Axis Capital said in a report this week that with steel demand currently being weak globally the surge in exports from China had fueled concerns on oversupply. It said hopes of a stimulus-driven demand recovery in China was fading away.

Grasim Ind Apr-Jun net profit, sales up sharply but margin contracts

12 Aug 2022

The profitability of Grasim Industries Ltd fell in the June quarter on higher operating costs, while the operating profit, sales and net profit rose sharply.

The Aditya Birla Group company reported a net profit of 8.1 bln rupees for the quarter ended June, up 68% on year. It was above analyst estimates of 5.2-6.1 bln rupees.

The sales jumped 93% to 72.5 bln rupees, and were above analyst estimates of 63.8-70.2 bln rupees

Grasim's operating profit, defined as earnings before interest, tax, depreciation and amortisation, also rose sharply by 69% on year to 13.6 bln rupees.

But a substantial rise in operating costs in Apr-Jun led to the operating margin contracting to 18.6% from 20% a year ago.

The cost of materials consumed jumped 83% on year to 33.4 bln rupees while power and fuel costs rose sharply by 92% on year to 12.3 bln rupees.

Grasim's revenue growth was aided by a doubling of revenue in its viscose segment to 43 bln rupees driven by a sales volume increase of 76% in viscose staple fibre to 197,000 tn and improved realisations in the segment. The viscose filament yarn volume was up 34% on year to 10,300 tn during the June quarter.

The company said that the viscose staple fibre growth in the June quarter was aided by around 51,000 tn contribution from its brownfield expansion at the Vilayat site.

In the company's chemicals segment, the volume performance was not great. The caustic soda sales were up only 17% on year to 278,000 tn while the chlorine and HCL consumption in value added products was up 34% on year to 86.7 mln tn.

The company said that average global caustic soda prices peaked at $769 per tn on the back of higher energy prices and supply chain disruption. A weak demand environment prevailed in the chlorine user industry in segments like dyes and pigments, and as a result the chlorine sales realisation continued to stay negative, the company said.

However higher sales realisation in the chemicals segment led to a 90% jump in revenue to 27.3 bln rupees.

The bottomline was mainly aided by the sharp rise in operating profit.

Tax expenses were 2.2 times higher at 2.1 bln rupees.

Pidilite Ind expects Jul-Sep input costs to be "highest", impact operating margin

12 Aug 2022

Pidilite Industries Ltd expects the operating margin in the September quarter to be flattish due to consumption of unutilised key raw materials from the June quarter when the prices were at their peak, the company told analysts in a conference call with analysts and investors on Thursday.
 
The adhesive-to-construction-chemicals company's managing director, Bharat Puri, also told Informist that the consumption of key raw material vinyl acetate monomer would likely be in the $2,300-2,500 per tn range in the September quarter as compared to $2,200-2,400 range recorded in the June quarter.
 
This represents a $100 per tn, or around 5%, increase in the vinyl acetate monomer cost in the September quarter and would restrict any expansion of the operating margin.
 
In the June quarter, Pidilite's operating margin, defined as the earnings before interest, tax, depreciation and amortisation margin, contracted to 17.1% from 17.8% a year ago. In Jan-Mar, the margin was 16%.
 
The profitability of the company during the quarter was hit due to a jump in raw material expenses. They rose 72% on year to 15.7 bln rupees, accounting for nearly 60% of the total expenses. But calibrated price hikes and 44% volume growth led to the consolidated EBITDA rising sharply by 52% on year to 5.3 bln rupees.
 
Puri told analysts in the call that he saw the near term as challenging because of two reasons.
 
The company saw the highest level of input costs in the June quarter and "a large part of those input costs will be consumed in the current quarter (Jul-Sep)," he said. Therefore, from an operating margin point of view the near term will be very challenging.

Puri said the raw material costs as a percentage of sales will likely be the highest in the September quarter. The operating margin will be impacted by this and on how the product mix works out, he said.

The second reason, according to Puri, was that the company was seeing a slowdown in growth in the rural and semi-urban areas due to a significant rise in the cost of building materials in the last one year.

“Until the effect of a good monsoon and money going into the hands of the rural and semi-urban consumers, which will happen in the second half of the current financial year, the near term will remain challenging,” he said.

In the June quarter Pidilite’s consolidated net sales were up 60% on year to 31 bln rupees while the net profit jumped 61% on year to 3.5 bln rupees.

August 12, 2022

Cost of production in Jul-Sep may rise 17-19% on qtr, says Hindalco

 11 Aug 2022

Hindalco Industries Ltd expects the cost of production to rise in the high teens in the Jul-Sep quarter due to the flow-through effect of high coal costs in the June quarter, the management told analysts in a conference call with investors and analysts on Wednesday.

Coal costs is reflected in the power and fuel expenses of the aluminium and copper producer.

The cost of production in the June quarter was 17% higher than that in the previous quarter, the company said.

"Probably Q2 (September quarter) will be in some way our worst quarter from the cost of production point of view because the majority of the coal problems and the high cost coal that we had to buy during May-Jun will be consumed in Jul-Sep quarter," a senior official said.

The company expects the production costs to rise sequentially in the high teens which could mean that the rise would be in the 16-19% range.

The company said the coal has been the biggest factor in the rise in the cost of production since the company had to source 31% of their coal from the auction market after the government restricted the linkage coal supply to non-power producers.

The premiums in the auction market had risen substantially to 500%, the company said.

The company expects the share of shrinkage coal from 50% to 65% in the December quarter with coal supply woes easing gradually.

On a standalone basis, Hindalco's power and fuel expenses rose 32% sequentially to 25.1 bln rupees and it made up for 15.1% of operating expenses. Raw material expenses, which made up for 59% of expenses, recorded a decline of 17% sequentially.

The standalone operating margin of Hindalco contracted to 15% in Apr-Jun from 17.2% in the previous quarter. The operating profit, defined as earnings before interest, tax, depreciation and amortisation, declined by 10.3% sequentially to 29.3 bln rupees.

Jul sales volume over 1.4 mln tn, SAIL expects further recovery ahead

11 Aug 2022

Steel Authority of India Ltd sold over 1.4 mln tn of steel in July and expects the current month to record the highest sales volume for August of any year, its management told analysts and investors in a conference call today.

The steel public sector unit reported a weak set of earnings numbers for the June quarter on the back of 5.4% decline in sales volume to 3.2 mln tn from the year ago period.

It was in this context that the company addressed concerns on volume growth front. The company said it was confident of volume recovering in the remainder of the current financial year on the back of a bounce back in domestic steel consumption.

The company's net profit for the June quarter fell 80% on year to 7.8 bln rupees. But its sales went up by 16% to 249.3 bln rupees on the back of improved sales realisation.

The company disclosed in today's analyst call that the net sales realisation in the June quarter was 66,829 rupees per tn as compared to 59,495 rupees in the March quarter.

Since coal costs went on a decline for the company in the current quarter till date the sales realisations in July had fallen.

The company said its imported coking coal costs were down in July to 38,000 rupees per tn from 39,500 rupees per tn in Apr-Jun. It expected the cost to come down further by 4,000-5,000 rupees per tn in the current month and further from September onwards.

The imported coal consumption in the June quarter was around 85% of total coal consumption. Indigenous coal made up for the rest and its costs were much lower at 13,000 rupees per tn in the June quarter.

SAIL's cost of materials consumed jumped 2.8 times to 176.8 bln rupees in Apr-Jun. This affected its operating performance.

The operating profit, defined as earnings before interest, tax, depreciation and amortisation, dived 61% on year to 26.1 bln rupees in the June quarter and its operating margin contracted substantially to 10.9% from 32.3% in the year ago period.