Earnings Review: Tata Chem net profit surges on operating profit jump

 9 Aug 2022

Higher realisations and moderate volume growth were enough for Tata Chemicals Ltd to offset sharp rise in energy costs and raw material expenses and record a significant increase in operating profit in the quarter ended June.

It led to a 2.1 times rise in consolidated net profit to 5.9 bln rupees as compared to the year ago period. The reported net profit was higher than analyst estimates of 3.4 bln-4.5 bln rupees.

The consolidated net sales were up 34% on year to 40 bln rupees which too were above analyst estimates of 37 bln-39.5 bln rupees.

Tata Chemicals' sales were higher on the back of rise in realisations in sales of soda ash and sodium bicarbonate in domestic and export markets of US, Kenya and UK.

This was despite soda ash volume declining 1% to 885,000 tn. The increase of 5% in sales volume of sodium bicarbonate to 58,000 tn aided the company's sales.

There was a volume growth in salt sales as well. It went up 2% to 418,000 tn.

ACROSS GEOGRAPHIES
Tata Chemicals' domestic revenue jumped 48% to 8.3 bln rupees.

Tata Chemicals said that domestic demand for soda ash and sodium bicarbonate was strong during the June quarter and the company's Mithapur unit operated at full capacity. The company sells soda ash, sodium bicarbonate and salt in the domestic market.

The domestic soda ash volume was up by only 1% on year to 167,000 tn but sodium bicarbonate sales increased sharply by 8% to 27,800 tn and salt sales were up by 6% to 311,900 tn.

In the US market where the company sells only soda ash the revenue growth was 34% on year to 8.4 bln rupees even though the sales volume was lower by 1.7% at 577,600 tn.

Tata Chemicals' Kenyan operation saw soda ash sales jump 84% to 1.3 bln rupees. But the volume was near flat at 83,100 tn.

Revenue growth was the lowest in UK with sales rising 31% on year to 4.1 bln rupees.

There was a fall in UK sales volume of soda ash and salt. While soda ash volume fell 4.3% to 67,500 tn that of salt fell 8.3% to 96,000 tn. Sodium bicarbonate sales were however up by 3.7% to 27,100 tn.

HIGHER PROFITABILITY
The consolidated operating profit, defined as earnings before interest, tax, depreciation and amortisation, of the company jumped 69% to 10.2 bln rupees in Apr-Jun. The EBITDA margin expanded to 25.4% from 20.2% a year ago.

The EBITDA growth was primarily driven by higher realisations. It was the highest in domestic, UK and Kenyan operations.

The company said that soda ash realisations increased across units with US and Kenya export pricing remaining firm.

The realisations in the UK market were higher as input costs rose sharply and the company was able to pass on the costs to its customers.

But the EBITDA from the company's agrichemicals subsidiary, Rallis India, fell 7%. Tata Chemicals holds a 50% stake in its subsidiary Rallis India which declared its June quarter results last month.

COMPANY OUTLOOK
Tata Chemicals' managing director and CEO R Mukundan said that global demand environment in the company's products and their applications remains strong.

"While this positive momentum is expected to continue in the near to medium term, the input side environment especially energy remain at elevated levels coupled with logistic challenges that continue to be seen in the market," he said.

Earnings Outlook: SAIL may sail through on sales but PAT seen diving

8 Aug 2022

Steel Authority of India Ltd is expected to report a net sales of 244.7 bln rupees, up 19% on year, for the quarter ended June according to an average of the estimates by four brokerage houses.

The net profit is pegged between 5.3 bln rupees and 7.6 bln rupees, down 80-86% on year, according to estimates by three broker firms. Another broker firm, IDBI Capital Market Services, estimates SAIL’s net profit to be further lower at 3.1 bln rupees.

The company will declare its June quarter results on Wednesday.

Analysts see the topline aided by single-digit volume increase and double-digit rise in steel prices in Apr-Jun as compared to the year ago period.

Brokerage Kotak Institutional Equities sees SAIL’s volume going up by 6% on year and steel realisation to increase by 10% due to higher steel prices in the domestic market.

The operating margin of SAIL may fall in Apr-Jun “due to impact of higher coking coal prices,” according to brokerage Axis Securities.

"Higher coking coal costs and rigid employee costs will lead to sharp fall in EBITDA/t (operating profit per tn) for SAIL compared to its peers," said brokerage, IDBI Capital Market Services.
    
Sequentially, SAIL’s net sales are seen lower by 20%, and the net profit estimate is 68-78% lower.

After the company announces its June quarter results on Wednesday, investors will monitor company guidance on volume for 2022-23 (Apr-Mar), and updates on capital expenditure incurred and planned.

Hindalco’s Apr-Jun consol net sales seen up but volume may fall

8 Aug 2022

Hindalco Industries is expected to report a consolidated net profit of 30 bln-32.3 bln rupees for the quarter ended June according to estimates by three brokerage houses. The company will declare its quarterly results on Wednesday.

The net profit estimates put it higher by 8%-16% than that a year ago.

Analysts see the bottomline getting propped up by higher selling prices of aluminium. However a one-time tax gains in the year ago period and elevated input costs during the quarter will be a drag on the net profit growth.

The estimates were made before Novelis Inc, a wholly-owned overseas subsidiary of Hindalco, declared its results for Apr-Jun on Wednesday.

Novelis reported a near-flat net profit of $307 mln due to high operating costs. This is likely to have a major impact on Hindalco’s consolidated net profit.

Novelis net profit contributed nearly 60% of Hindalco’s consolidated net profit in the year ago quarter, back of the book calculations show.

The estimates by three brokerage houses peg Hindalco’s consolidated net sales between 524.4 bln rupees and 534 bln rupees, 27%-29% higher than a year ago.

It seems very likely that Hindalco’s net sales growth will be above 20% in Apr-Jun since that of Novelis was 32%. But although the $5.1 bln net sales reported by Novelis represented a sharp rise the company’s sales volume was down by 1% to 962,000 tn.

Higher realisations, though, helped drive the overseas subsidiary’s sales

Hindalco’s domestic aluminium sales are unlikely to register high increase. According to Axis Securities, the company’s domestic aluminium production may stay at 322,000 tn, up only marginally from 319,000 tn a year ago.

Of Hindalco’s consolidated net sales in the year ago quarter Novelis’ share was nearly two-thirds.

Sequentially, the estimates for Hindalco’s consolidated net profit and net sales levels are both lower.

The Novelis figures for Apr-Jun indicate a mixed trend though. Novelis’ net profit jumped 38% on the quarter while its net sales were up by just 5% and sales volume was down 3%.

When the company details its earnings on Wednesday, comments on the aluminium and alumina price trend going forward and input cost pressures will be monitored by investors.

NALCO Apr-Jun net profit, sales up strongly but margin contracts

8 Aug 2022

The operating margin of National Aluminium Co Ltd declined marginally in the June quarter even as the consolidated net sales, net profit and operating profit increased sharply. A substantial increase in input costs checked any expansion in the operating margin.

The company's aluminium segment performance drove the strong topline and bottomline performance of the company during the quarter, while alumina segment performance was weak.

The consolidated net profit of the aluminium and alumina producer rose 60% on year to 5.6 bln rupees on the back of a 53% jump in consolidated net sales to 37.8 bln rupees.

NALCO's earnings before interest, tax, depreciation and amortisation also increased sharply by 50% to 8.7 bln rupees.

But a surge in energy costs and raw material expenses stopped any operating margin expansion. The EBITDA margin was 23% in Apr-Jun, 50 bps lower than that in the year ago period.

NALCO's power and fuel costs which made up for 44% of total expenses in Apr-Jun jumped 79% on year to 13.4 bln rupees.

Its raw material expenses rose significantly by 87% to 7.3 bln rupees. It contributed 24% to total expenses.

But a strong control over other expenses which went up by just 3% to 4.9 bln rupees meant that the EBITDA rose strongly.

The company's sales performance in Apr-Jun was driven by aluminium segment sales which jumped 72% on year to 29.8 bln rupees.

The alumina segment sales growth was moderate in comparison. Its sales went up by 12% to 12 bln rupees.

The operating profit performance during the June quarter was also driven by the aluminium segment. The aluminium segment profit doubled to 8 bln rupees, while the alumina segment recorded a loss of 71 mln rupees as compared to a profit of 1.2 bln rupees a year ago.

Sequentially, NALCO's consolidated net profit was 46% down and net sales were 13% lower. It reflected demand pressures in the June quarter.

The company's EBITDA margin of 23% in Apr-Jun was also sharply lower than 37.3% in the March quarter.

The government owns a 51.3% stake in NALCO.

The company today declared a final dividend of 1.50 rupees per share for 2021-22 (Apr-Mar).

Earnings Outlook: Tata Chemicals' sales, net profit seen up but operating margin may contract

5 Aug 2022

Tata Chemicals Ltd is seen reporting good topline and bottomline performance in Apr-Jun, but its operating margin may have taken a hit due to high input costs.

The consolidated net profit of Tata Chemicals in the June quarter is expected to be between 3.4 bln rupees and 4.5 bln rupees, according to estimates by three brokerage houses. In the year ago quarter the consolidated net profit was 2.9 bln rupees, while it was 4.6 bln rupees in the previous quarter.

As per the estimates the consolidated net sales will likely be between 37 bln rupees and 39.5 bln rupees. The consolidated net sales was 29.8 bln rupees a year ago and 34.8 bln rupees in the previous quarter.

The company will declare its results for the June quarter on Tuesday.

A revival in a construction activity across the globe would have improved flat glass demand and consequently improved the demand for soda ash, according to brokerage ICICI direct.com Research in its preview report.

“We expect export business for North America unit to have performed well and thus, should have given respite to the overall performance,” the brokerage said.

Soda ash contributed a little over 50% of Tata Chemicals’ consolidated revenue in 2021-22 (Apr-Mar), data from the company’s annual report for the year showed.

According to brokerage Kotak Institutional Equities, US margins could potentially improve on the back of better international realisations, while the UK and Africa businesses should hold steady.

The operating profit margin will likely to remain at 20%, down 22 bps on the year, according to ICICI direct.com Research.

Tata Chemicals holds a 50% stake in its subsidiary Rallis India which declared its June quarter results last month.

Rallis India’s net sales increased by 17% on the year to 8.6 bln rupees in Apr-Jun while its net profit fell 18% to 675 mln rupees.

The revenue contribution of Rallis India to Tata Chemicals’ consolidated revenue is estimated to be around 7%. In the March quarter it was 7.3% based on back-of-the-book calculations.

Metal Stocks Outlook: Rally slowing, may come to a halt next week

5 Aug 2022

Next week the market will try to make sense of conflicting news on China’s economy to gauge the absence or revival of the country’s steel requirements. Domestic steel makers stand to improve their sales if there is a revival in China’s realty construction.

While some believe the news of Chinese proposals to revive the realty and infrastructure projects, others are taken over by news reports of property crisis in China worsening.

This week saw the metal stocks rally weaken considerably with the Nifty Metal index rising but only by 2% on the week. The index has risen sharply last week by 7.7%.

Global conditions apart, analysts were upbeat on domestic steel demand given the fall in steel prices since May. “Whatever demand got stuck due to high steel prices prior to May when the exports tax was introduced and prices cooled off thereafter may be released in the current quarter,” said a metal sector analyst with a leading brokerage firm.

However, till such time clear signs of demand recovery is visible the market is likely to stay cautious. The traders will also have an eye out for any signs of recovery in demand for steel from Europe.

There is one thing that all analysts are sure about. The high operating margins of metal companies in the quarters of 2021-22 (Apr-Mar) will not be replicated in the current financial year. “That period is over,” said the metal sector analyst.

These factors will hold metal stocks in check next week which will see one trading holiday on Tuesday.

PI Ind sees strong FY23 demand outlook but raises sales guidance only a little

4 Aug 2022

The upward revision by PI Industries Ltd in its revenue guidance was not significant nor specific. The company has announced a slight enhancement of revenue guidance for 2022-23 (Apr-Mar) to 20%-plus from 18-20% given in May.

The company’s management told analysts in a post-earnings conference call today that it is mindful of uncertainties in current global scenario and therefore cautious in the revenue guidance.

This, however, stood in contrast with the strong demand-led revenue growth outlook made by the company for the current financial year.

In particular, PI Industries is expecting a continued scale-up in overseas demand for its custom synthesis and manufacturing (CSM) products with robust momentum in new enquiries and conversion to continue.

The June quarter saw the company deliver a 30% jump in exports volume, which were largely CSM product based. Export sales increased sharply by 42% and accounted for 74% of total net sales which rose 39% to 2.6 bln rupees.

PI Industries became more dependent on export-driven revenue growth in Apr-Jun as the domestic revenue was up by merely 4% and probably saw a flat or slightly lower volume as compared to the year ago period. The company sells insecticide and other agrochemical products to farmers and other customers in the country.

The company told analysts in response to a query that the export sales emanated from the CSM order book which stood at $1.4 bln at the start of the quarter. But the order book has got filled up and continues to stand at $1.4 bln at the end of the June quarter, the company said.

“Given current uncertain environment… our customers and suppliers want a normalization of scenario before entering into long-term contracts,” a senior management official said during the analyst call.

The projections of robust demand momentum were based on volume estimates provided by PI Industries’ customers.

Even though the company is confident of expanding operating profit and margin, the ability of the company to sustain price hikes in the domestic agrochemical segment and overseas CSM segment will also be tested if the commodity price cycle trend turned adversely and cost headwinds sustained.

This is seen from the fact that in the Apr-Jun quarter the operating margin expanded by just 9% or 180 bps to 22.1% even as the operating profit jumped by 40%.

Earnings Review: PI Ind profit up on export volume and currency gains

4 Aug 2022

PI Industries Ltd’s bottomline grew in the quarter ended June on the back of a sharp increase in exports volume, pass through of rising input costs and currency gains.

The consolidated net profit of the chemical company increased by 39% on the year to 2.6 bln rupees in Apr-Jun. The standalone net profit of 2.5 bln rupees was above analyst estimates of 2.3 bln rupees

PI Industries’ consolidated net sales rose by 29% on the year to 15.4 bln rupees. But adjusted for currency gains from its export sales, the company’s net sales were up by 21%. Exports sales accounted for 74% of total sales.

The standalone net sales of the company stood at 15 bln rupees and was slightly above analyst estimates of 14.8 bln rupees.

Exports volume jumped by 30%, the company said in its investor presentation following the results announcement.

The June quarter sales increase in the domestic market was a mere 4% on the year. Had the company not taken price hikes during the quarter the domestic net sales may have gone down.

PI Industries’ consolidated operating costs rose by 27% on the year to 12 bln rupees in Apr-Jun and the operating margin was higher at 22.1% as compared to 20.3% in the year ago period.

The rise in operating costs was lower than that of net sales mainly due to lower increase in cost of materials consumed and employee expenses.

The cost of materials consumed went up by only 9% on the year to 8.7 bln rupee in the June quarter while employee expenses were up by 8% to 1.3 bln rupees.

However, the other expenses, which included sales promotion costs, jumped 31% to 2.1 bln rupees.

The company said that it maintained higher inventory levels in Apr-Jun at 15.8 bln rupees and its working capital stood at 102 days as of June 30 as compared to 103 days as of Mar 31.

The capital expenditure of PI Industries was 506 mln rupees in the June quarter.

The company said it aimed to deliver 20% sales growth in 2022-23 (Apr-Mar).

SEBI Watch: Bring controlling shareholders proposal back on the table

 4-August-2022

The Securities Appellate Tribunal recently ruled against Securities and Exchange Board of India’s orders in the case of New Delhi Television promoters’ loan agreements with Vishvapradhan Commercial and resulting breach of the takeover regulation.

SEBI had earlier held that Vishvapradhan Commercial breached the takeover regulations by failing to make an open offer.

In another order SEBI held that NDTV’s promoters Prannoy Roy, Radhika Roy, and RRPR Holding violated the listing and anti-fraud regulations by not making disclosure on the loan agreements and their terms to the company or stock exchanges. Since it was material and price sensitive information, the investors and board of NDTV were deceived and the acts of the three promoters were, therefore, fraudulent, SEBI held in its order.

The SAT had combined the appeals against these two and other related orders of SEBI in the same matter.

Its ruling in the case deals a blow to SEBI’s efforts to get promoters of listed companies to be transparent and upfront about the fetters and covenants on their shares when they borrow money. SEBI must, therefore, appeal against the ruling.

The Tribunal’s interpretation went against SEBI as there were grey elements in the regulations whose interpretation could have gone either way.

At the core of the contentions was the meaning of control and acquisition of control under SEBI’s takeover regulation.

According to the regulation, “control shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable…, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.”

The “in any other manner” provision in this definition applied to the NDTV promoter case. SEBI had rightly held that covenants or conditions in the loan agreement between Vishvapradhan Commercial and NDTV promoters gave the former indirect control over the company.

Further, the clause on the acquisition of control in the regulation specifies that “irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company.”

This would lead one to interpret that a control can be acquired irrespective of whether or not an actual acquisition of shares took place.

But these two clauses became the bone of contention in the case before SAT.

The Tribunal in its wisdom decided that the loan provisions did not result in acquisition of shares till such time that the NDTV promoters didn’t default on repayment of the loan.

It did not accept SEBI’s contention that through the debt covenants Vishvapradhan Commercial had acquired veto rights in 26% shareholding held by promoters and this resulted in the acquisition of control.

It said that so long as the loan remained unpaid by NDTV promoters, Vishvapradhan Commercial continued to have the warrant conversion option, the purchase option, and the call option, under the call option agreements.

“It is a settled position of law that when there are options with convertibility, unless such options are exercised, the obligation to make an open offer…is not triggered.”

SEBI must, however, not treat this interpretation as settled since the complexities in the shareholding structures of companies have gone up significantly and some of these are designed to side-step the regulations.

In fact SEBI must reconsider the proposals made in a consultation paper in May 2021 that called for replacing the promoter and promoter group concept with the concept of controlling shareholders and persons acting in concert.

SEBI has not accepted this and other proposals made in the consultation paper.

Investors and other securities market participants are intuitively aware that in an increasing number of cases the real controlling shareholders are not among those listed in the promoter category.

The NDTV promoter case setback must motivate SEBI to accept the path-breaking proposals made in that paper.

Hindalco arm Novelis Apr-Jun net profit hit by low volume, high costs

3 Aug 2022

Novelis Inc, a wholly-owned overseas subsidiary of Hindalco Industries Ltd, reported a muted earnings performance for the quarter ended June.

Flat shipment volume and high operating costs restricted the operating profit growth to just 1% on the year.

The flat-rolled aluminium producer and aluminium recycler reported a net profit, excluding one-time tax-effected items, of $307 mln in Apr-Jun, up 18% from the year ago period.

Novelis’ net sales jumped 32% to $5.1 bln despite shipment volume declining 1% to 962,000 tn.

The operating profit, as denoted by the earnings before interest, tax, depreciation, and amortisation, went up marginally by 1% on the year to $561 mln.

Operating profit went up in North America by 32% on the year to $227 mln and in South America by 24% to $193 mln but that in Europe fell 18% to $84 mln. The operating profit in Asia was up by 8% to $94 mln.

The overall EBITDA margin contracted sharply to 11% in Apr-Jun from 14.4% a year ago. The company said operating costs rose substantially on the back of energy costs.

Novelis’ sales, which rose 32% on the year in the June quarter, were driven by higher aluminium prices, particularly in the specialty products segment, the company told analysts in an earnings conference call today

But the volume growth was hit partly due to truckers strike in South Korea and lockdowns in China, the company said.

Shipment volumes went up in North America but fell in Europe, Asia and South America, data from the company’s investor presentation showed.

As per the free cash flow data provided by the company, it saw a free cash outflow of $73 mln in Apr-Jun as compared to a free cash outflow of $30 mln a year ago. This was on account of a rise in working capital expenses to $442 mln from $425 mln and capex spend to $110 mln from $101 mln.

The company said it saw demand for beverage can to be stable going forward. Novelis outlook on sales in automotive, specialty and aerospace segment to be positive in the next two quarters.

Novelis is a wholly-owned subsidiary of aluminium producer Hindalco Industries. According to rough estimates based on dollar-rupee exchange rates, it contributed over one-third of consolidated revenues in the June quarter of 2021-22 (Apr-Mar) and nearly 60% of consolidated operating profit.