Dalal Street Investment Journal – July 20, 2019

DSIJ.in JULY 22 - AUG 4, 2019 I DALAL STREET INVESTMENT JOURNAL (^93)
at 3.4 million tonnes in FY17 and is forecasted to reach to 5.3
million tonnes by 2020. NALCO reported robust margin
expansion to 25 per cent in FY19 from 15 per cent in FY18.
The sector gained substantially from global economic
growth with a surge in demand from the user industries
for both aluminium and copper. China controls about 50 per
cent of the world production and consumption of both the
metals.
Hindalco Industries reported 13 per cent revenue growth at
130542.25 crore in FY19 over the last fiscal. The copper production fell by 46 per cent during FY19. This was mostly due to Hindustan Copper and Hindalco, which had low production due the planned shutdown of their smelters during the first half of the year. This created pressure on the overall margins and the company could not capitalise on strong performance in aluminium business. The margins stood at 12 per cent for FY19, which is same as FY18. The ferrous metal companies reported strong topline growth. The largest steel firms such as JSW Steel, Tata Steel, SAIL, Jindal Steel & Power posted 16 per cent, 27 per cent, 14 per cent and 39 per cent revenue growth for FY19 over the last fiscal. In FY19, the finished steel production rose by 5.9 per cent YoY to 111 million tonnes on the back of consumption growth of 7.5 per cent to 98 million tonnes. An increase in demand from the user industries like infrastructure and construction, railways, consumer durables, among others, were the driving factors for the rise in steel output and consumption during the year. Indian steelmakers had strong operational performance. The margins for FY19 were largely higher than what they were in the earlier fiscal. The strong performance was due to relatively strong domestic finished steel consumption growth. Imports increased by 4.7 per cent (0.4 million tonnes), much slower than what the market had feared last year in the wake of the imposition of steel import tariffs by the US. For FY19, JSW Steel and Tata Steel reported increase of 28 per cent and 40 per cent, respectively, in their EBITDA. JSW Steel has initiated huge capex programme with an aim to expand current capacity of 18MT to 24.7MT by FY21 and through addition of value-added products. This is expected to drive EBITDA margins and profitability growth, while maintaining balance sheet strength. The share of exports to China has increased from 63 per cent during FY18 to 75 per cent during FY19 and share of imports from Japan has increased from 68 per cent during FY18 to 71 per cent during FY19. Going ahead, as no major capacity is expected to come up from large steel players, while the small steel players are estimated to increase their output at a rate similar to last year, the finished steel production growth is likely to decelerate to 3%-4% during the year FY20. On the pricing front, the international steel prices are expected to be around USD 525-550 per tonne, mostly on account of stable demand growth. Considering this, we can expect global prices to witness an upward trend, if the current trend of higher raw material prices, especially iron ore, continues. India’s aluminium production capacity has increased to 4.1 MMTPA, driven by investments worth1.2 lakh crore
(US$ 18.54 billion). The total imports of
aluminium and aluminium products in India
during FY18 stood at US$ 3.55 billion,
whereas in FY19, it reached US$ 4.16 billion.