Sterlite Industries and Hindalco, two leaders of India’s base metal industry, couldn’t reap the benefit of rising base metal prices fully. Going by their numbers, it appears that demand for base metals was not very strong during the quarter to December ‘09.
It means, for them, the bottomline gains came mainly from higher base metal prices. The base metal prices were 10-20 % higher in the December ‘09 quarter when compared sequentially. While their topline is in line with market expectations, thanks to higher sales realisation , net profit numbers are below the expectations.
The results of both the companies came after market hours and the reaction of the market will be known only on Wednesday.
Both the companies failed to come up with a good show in their copper and aluminium businesses. For Sterlite, the combined operating profit from these two business segments has declined sequentially . In Hindalco’s case, this sequential growth at 11% is slightly better .
However, the numbers appear quite robust when compared on a year-on-year basis. But it is important to keep in mind the fact that the December ‘08 quarter was when the commodity cycle had bottomed out. Hence, there is an element of base effect in these growth numbers.
Sterlite’s numbers could have been worse in the absence of a good show by Hindustan Zinc. Its copper business, however, dragged down profitability, thanks to lower volumes. As a result, the operating margin contracted by 70 basis points on a sequential basis.
The good news, however, is that realisations from byproducts have started moving upwards. It means that the March quarter is likely to see an improvement in operating margins in the copper business. The company continues to suffer from high cost of production at its Balco plant. The $150-sequential rise in LME aluminium prices was more than offset by the increase of $210 in the production cost at the Balco plant.
Hindalco has done well compared to Sterlite, in its aluminium business, thanks to its captive mines. In spite of the rising cost of coal, a key input in power generation, the operating margin in the aluminium business expanded by roughly 750 basis points.
The company , like its peer, couldn’t do so well in the copper business with the margin almost being half of what it was in the previous quarter. Both the companies are custom smelters and act as converters. The conversion charges continue to be under pressure. And this situation may not improve significantly in the March quarter as well.
豫公网安备41010502003434号