Quarterly Analysis of Metals Sector – Q1
Metals industry comprising iron, steel, aluminium and more form the core components of products in various industries like construction, automobiles, infrastructure, etc.
As such, India is the second-largest producer of steel, a position which was previously occupied by Japan.
Here are some statistics showing the market size of the metal industry in India –
- In FY 2021-2022, the production of iron ore was 189 million tonnes (MT). Iron ore exports, in May 2021, were recorded at US$ 574.56 million compared to US$ 457.05 million in May 2020.
- In the FY 2020-2021, 914 steel plants were recorded in the country producing about 102.49 MT of crude steel.
- In FY 2020-2021, aluminium production stood at 3.65 MT and aluminium exports were recorded at US$ 20.18 million.
Quarter 1 performance of the leading metal companies of India
| Name of the company | Net profit | Revenue | Other statistics |
| JSW | Rs.5904 crores, against Rs 561 cr loss last year – 1152.4% y-o-y growth | Rs.28,902 crores, a 145% jump on a y-o-y basis |
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| Tata Steel | Rs.9768 crores, 3101.5% rise y-o-y on account of loss of Rs Rs 4,648 crore last year | Rs.53,372 crores, a jump of 109.5% y-o-y |
|
| JSPL | Rs.2515.71 crores, an increase of 967% y-o-y | Rs.10,083 crores |
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| SAIL | Rs.3897.36 crores, an increase of 417.77% y-o-y | Rs.20,643.02 crores, an increase of 127.66% y-o-y |
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| Hindalco | Rs.910 crores, an increase of 2375% y-o-y | Rs.13,298 crores, an increase of 79.22% y-o-y |
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Metal indices performance: Nifty Metal Index and S & P BSE Metal
The Nifty Metal index had recorded a gain of more than 140% in a year as of September 8. This beats the overall Nifty gain of around 53% during the same time frame.
The Nifty Metal Index is composed of 15 stocks and out of these, 14 components rose in double-digit figures. 9 stocks even recorded more than 50% growth in their prices. Between July 24th and July 30th, the metal index jumped 8%. This jump was caused due to the jump in the export duties levied by China. Since Indian steel is about 15% cheaper than global steel prices, a higher import duty by China is positive news for India as steel exports are expected to rise.
The S & P BSE Metal Index too has recorded an impressive growth of around 136% as of September 8, 2021. This jump was contributed by the strong demand for metals, both in the domestic market and internationally.
Net profits
The net profits of all leading metal companies grew considerably. In fact, many companies recouped their last year’s losses and posted a considerable amount of profit due to increased demand in domestic and global markets. Here are some highlights –
- JSW and Tata Steel reported net profits of Rs.5,904 crores and Rs.9,768 crores, respectively
- Hindalco posted a 2375% y-o-y growth in its net profit. From a loss a year earlier, the company’s net profit after the first quarter stood at Rs.2,787 crores
- JSPL and SAIL also reported a 3-figure y-o-y growth in their net profits at 967% and 417.77% respectively.
Revenue
Since the demand was high, companies also recorded positive growth in their revenue figures. The consolidated revenues earned by major steel giants are as follows –
- JSW, Tata Steel and SAIL recorded triple-digit y-o-y growth in their revenues. JSW’s revenue grew by 145% while Tata Steel’s and SAIL’s revenues grew at 109.5% and 127.66% respectively.
- Hindalco also posted a high revenue of Rs.13,298 crores
Capex
The metals and mining industry is very capital intensive. This means, the expenditure the company makes to keep the production running – such as machinery upgrade and upkeep, labour charges, tools etc -is high. It was surprising to see that many companies reduced their capital expenditures in Q1 FY2021-2022, which in turn boosted their profit figures. For example, JSW spent Rs.2,688 crores on capital expenditure which is only 15% of the company’s overall forecasted capital expenditure for the full year. Tata Steel, on the other hand, spent a modest figure of Rs.2011 crores on capital expenses, keeping them firmly in check.
Debt level
The quarter saw companies making considerable repayments towards their existing debts to reduce the debt burden. This also reduced the interest cost and made companies more profitable. Some of the notable debt reductions are as follows –
- Tata Steel’s gross debt was reduced to Rs.84,237 crores and the net debt was reduced to Rs.73,973 crores
- JSPL reduced its net debt from Rs.35,919 crores to Rs.22,146 within a year by making a prepayment on its debt
- During the first 2021 quarter, SAIL reduced its debt by Rs.5063 crores
- In the case of Hindalco, the gross and net debt figures were reduced by Rs.16,345 crores and Rs.10,389 crores respectively
Exports
The export figures were also up due to the increased demand for Indian steel and other metals the world over. For JSPL, during the AMJ 2021 quarter, exports accounted for 34% of the revenue.
The road ahead
India has already surpassed Japan to become the second-largest producer of steel. With all these developments, India might soon rank at the top for many other metals too. Moreover, as China has increased tariffs, the demand prospects look good. Even domestically, as the economy grows, the metal industry is also expected to see quite some uptick.
With the sector poised for growth, investors may look at metal stocks as supplementary to their growth strategy. However, make sure to do your research on individual companies and assess their suitability to your risk profile before investing in the stock market. Alternatively, consult a financial advisor.
