Sector Analysis : Metals

Key Highlights BSE Metal Index gave a positive return of 11.14% compared to negative return of 2.04% registered by BSE-500 in Q4 of FY 09. Upward trend seen in prices of metal in the global and domestic market. Out of 15 companies on BSE Metal index, 9 companies gave positive return. Sterlite Industries topped on the bourse giving return of 36.40% while laggard in Metal sector was Welspun-Gujarat with negative returns of 31.95%.

Movement in BSE Metals vis-à-vis BSE-500 (Q4 FY09)

Snapshot  The movement of metals have shown upward trend in Q4 FY09. The metal stock has shown signs of recovery with steady rise in the stock price on anticipation of global economic recovery. Indian metals majors have shown a positive trend over past few months. Greater consumption from the infrastructure sector and renewed demand from power sector has rejuvenated metal stocks, which moved with a sluggish note on the bourses a few months back. With global scenario improving especially due to increased demand form China, has led the metal stock recover from their gloomy days. Uptrend would continue to prevail on the bourses as the demand from large consumers like China and India would keep the surging over times. However, countries are still far from the full recovery status. Metals in Q4 FY 09 Financial Review of BSE Metal scrips for Q4 FY09  Company Name Net Sales  (Rs Crore) Sales Growth (Q-o-Q)% PBIDT (Rs. Crore) PBIDT Growth (Q-o-Q)% PAT (Rs. Crore) PAT Growth (Q-o-Q)% NPM (%) Hind. Zinc 1,288.93 24.97 775.53 43.27 551.47 49.52 42.79 Jindal Saw 1,465.35 -5.35 186.73 -4.81 97.85 12.93 6.68 JSW Steel 3,328.80 19.50 521.23 103.09 49.20 138.58 1.48 Sesa Goa 1,353.61 -0.46 786.19 26.70 528.78 12.34 39.06 Sterlite Inds. 2,331.68 -9.73 335.11 19.49 211.56 3.70 9.07 Out of 15 companies under BSE Metal index, only 5 companies have declared result of Q4 FY09 till May 21, 2009 Source: Capitalline The Indian metal sector staged a smart recovery in the three months to March-end on account of a revival in demand from the automobile, rural infrastructure and housing sectors, at a time when the world’s major steel-producing countries are facing a steep fall in output. Steel production and consumption grew at 1.2% and 3.8%, respectively, in the January-March quarter over the same period last year, after turning in dismal figures in the previous quarter when production and consumption slipped 7.8% and 13.6%, respectively. The recovery in steel production has been aided by the improved sales performance of steel companies. The fourth quarter saw most of the large steel companies such as SAIL, Tata Steel, Essar and JSW operating at full capacity. Lower steel production in the quarter to December-end was attributed to lower demand and output cuts. JSW Steel has posted a net profit of Rs. 49.20 crore for the quarter ended March 31st 2009 as compared to net loss of Rs. 127.50 crore for the quarter ended December 31st 2008. JSW reported an 11% increase in production during Q4 of FY09. The company’s sales grew 19.50% in the January-March quarter. The company has put off the 10-million tonne expansion project at Vijaynagar works, along with benefication plant and power plant by six months, and it will now be commissioned in March 2011. In Q4 FY09, Sesa Goa’s net profit rose 12.34% to Rs. 528.78 crore inclined in the average iron ore sales realization. As, Sesa Goa hold’s key competitive advantage over its peers because of its proximity to China, which is the largest importer of the iron ore and it contributed 66% to the Company’s sales volume. Sterlite Industries clocked a net profit of Rs. 211.56 crore during the quarter, against Rs. 204.01 crore in December quarter. Aluminium production for Q4 FY09 was 85,000 tonnes and 3,57,000 tonnes in FY09 compared with 92,000 tonnes and 3,59,000 tonnes in the corresponding prior periods. An investment worth Rs 17,649 crore is likely to go into the steel sector by 2020, taking India's steel capacity to be in excess of 290 million tonnes. Going by estimate of Rs 81.10 crore investments per million tonne of additional capacity, the sector is likely to see an investment of Rs 5,613 crore by 2012. Expansion Plans in Metal Sector SPS Steel & Power, an arm of Kolkata-based SPS group has set up a steel plant at the Mini Industrial Growth Centre, Gwalthai in Himachal Pradesh. With this new plant, the company aims to scale up its present production capacity of 1.6 million tonne per annum to 2 million tonne per annum by 2010. Non-ferrous metals giant, Vedanta Resources, plans to invest around Rs 479 crore in a 5 million tonne steel plant in Keonjhar district of Orissa and envisages its commissioning by 2012-13. Reliance Infrastructure, (part of the Reliance Anil Dhirubhai Ambani Group) plans to build a 12-million tonne steel plant in Jharkhand, which is likely to be completed by 2012. Essar Steel will expand its global chain of retail brand in Indonesia, Middle East, and other South Asian nations. The company plans to invest Rs 300 crore to scale up its overseas presence to 40 outlets in the next three years. Tata Steel has taken major retail initiatives to promote sale of its steel products in the country, including doubling of its outlets to 1,000 in the next 2-3 years for its branded products. Metal on Bourses The BSE Metal Index has given a positive return of 11.14% in Q4 FY09 outperforming the BSE-500 which gave a negative return of 2.04%. The index witnessed fluctuations of 41.06% between its highest & lowest levels. It touched its highest level 6,216.01 on 7th January while it was the lowest on 23rd January at 4,406.66 whereby BSE-500 moved 31.21% between the highest and the lowest prices. In the month of January, both BSE-500 and BSE Metal gave negative returns to the tune of 2.19% and 4.73% respectively. The same happened with the month of February as BSE Metal gave a negative return of 8.02% and BSE-500 showed a return of -5.68%. During March, BSE Metal outperformed BSE 500 giving 23.54% & 9.02% returns respectively. Performance of Metal index on BSE in Q4 FY09 Company Name Closing Price as on 31-Mar-09 (Rs) Closing Price as on 31-Dec-08 (Rs) (%) Return Sterlite Industries (India) Ltd 355.65 260.75 36.40 Hindustan Zinc Ltd 447.40 338.40 32.21 Jindal Steel & Power Ltd 1,201.55 911.90 31.76 Steel Authority Of India Ltd 96.45 77.45 24.53 Sesa Goa Ltd 100.75 85.70 17.56 National Aluminium Co. Ltd. 214.45 189.85 12.96 Jai Corp Ltd 80.05 77.75 2.96 JSW Steel 231.85 229.50 1.02 Hindalco Inds. 51.90 51.65 0.48 Tata Steel Ltd 206.00 216.85 -5.00 NMDC Ltd 156.70 165.20 -5.15 Ispat Industries Ltd 10.85 11.87 -8.59 Jindal Saw Ltd 177.40 221.60 -19.95 Gujarat N R E Coke Ltd 19.85 26.05 -23.80 Welspun-Gujarat Stahl Rohren Ltd 74.45 109.40 -31.95

Global Scenario Indian steel producers are spreading their footprint all over the globe. India has emerged as the third largest steel producer in the world, leaving behind Russia and the US, in the January-March of 2009. As per the World Steel Association for the January-March period of 2009, India reported 1.02% increase in output at 13.17 million tonnes for three months ended against the year-ago period. This shows there is demand for steel in the economy. China and Japan maintained their supremacy in terms of steel output to hold the first and the second slot respectively for the January-March period. China recorded a steel production of about 126 million tonnes, while Japan had 17.60 million tonnes in the three months. On the contrary, Russia and the US saw their production plunging by 33% and 53% to 12.88 million tonnes and 12.09 million tonnes, respectively, in the period. In terms of annual steel output, India holds fifth rank in the world with a production of over 55 million tonnes .The regulatory environment, too, has changed for the better. Not only is it enabling the industry to stretch out to foreign shores, the country's steel industry is getting renewed global attention. Steel demand is expected to rise at least 5% in the year to March 2010 as global demand for the metal rising. Japan's Sumitomo Metal Industries is planning to build a blast furnace steel plant in India with mid-tier producer Bhushan Steel, investing as much as Rs 300 crore. Arcelor-Mittal, the largest steel maker of the world, is planning to set up a captive port near Paradip in Orissa. The port will be used to serve two mega integrated steel plants of the company proposed in Orissa and Jharkhand. India is poised to be the world’s 2nd largest producer of steel before 2016. India's steel production will be nearly 124 million tones by 2012 and that the country could achieve an annual capacity of around 290 million tones by 2019-20. As India surges ahead in building infrastructure and launching its industry to new economic highs, investments in steel will pave the way ahead.

Outlook  While the demand for steel will continue to grow in traditional sectors such as infrastructure, construction, housing automotive, steel tubes and pipes, consumer durables, packaging, and ground transportation, specialised steel will be increasingly used in hi-tech engineering industries such as power generation, petrochemicals, fertilizers, etc. The new airports and railway metro projects will require a large amount of stainless steel. With the growing need for oil and gas transportation infrastructure, an Rs 11,800 crore opportunity is waiting to be tapped by steel manufacturers in the next five years. Indian steelmakers are set to make the most of booming global demand for steel pipes and tubes with the government withdrawing the 10% duty on the exports of these products. The additional capacity enhancement in the sector would generate employment for around 40 lakh people. The Indian Government plans to invest over Rs 35,000 crore in industries related to infrastructure and construction. In such a scenario, the Indian steel industry decidedly has a long way to go.