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Non ferrous metals: Who will be the savior? - Views on News from Equitymaster
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Non ferrous metals: Who will be the savior?
Jul 8, 2009

The non ferrous metals industry experienced a mixed performance during FY09. While the demand in the first half of the fiscal had been robust on account of expansion in domestic and global markets, the second half turned out to be extremely challenging on account of the global credit crisis. Prices of metals like aluminium and copper fell from their multi year highs to multi year lows. In this article, we will discuss the combined performance of both the half yearly periods of the major companies in the non ferrous metals space. In other words, we will have a look at their FY09 performance. For this purpose, we have considered three major players in the industry viz. Hindalco, Nalco and Sterlite Industries (standalone financials for all).

Combined performance of Non Ferrous metal companies in QFY09
(Rs m) FY08 FY09 Change
Net sales 370,076 351,202 -5.1%
Expenditure 304,885 292,773 -4.0%
Operating profit (EBDITA) 65,192 58,429 -10.4%
EBDITA margin (%) 17.6% 16.6%
Other income 15,363 17,430 13.5%
Interest (net) 4,466 5,448 22.0%
Depreciation 10,122 10,844 7.1%
Profit before tax 65,967 59,566 -9.7%
Extraordinary income/(expense)
Tax 11,526 12,177 5.6%
Profit after tax/(loss) 54,441 47,390 -13.0%
Net profit margin (%) 14.7% 13.5%
  • The combined topline declined by 5.1% YoY on account of both lower realizations as well as volumes during the fiscal. However, the steep depreciation of Indian rupee against the US dollar by 14% YoY has helped the industry to safeguard the topline from further decline.

    Average LME(US$/tonne) of Non ferrous metals
    FY08 FY09 % change
    Aluminium 2,620 2,227 -15.0%
    Copper 7,590 5,907 -22.2%
    Source : CMIE

  • Operating profits declined at a higher rate of 10.4% YoY as compared to the topline. This was mainly on account of lower than proportionate decline in operating expenditure as compared to topline during the fiscal. This has led to the contraction in the EBITDA margins by 1% to 16.6% in FY09.

  • The combined net profits declined at a higher rate of 13% YoY as compared to operating profits during the fiscal. This was mainly on account of higher interest charges, taxes and depreciation during the year. However, the rise in other income had a positive impact on the net profits during the fiscal.
What to expect?
Although globally the non ferrous metals industry is expected to remain muted in FY10, the demand in domestic markets is expected to remain strong on account of the government’s emphasis on infrastructure and power. Also the fact that per capita consumption of non ferrous metals like aluminium and copper in India are way below both developing as well as developed economies sets the stage for tremendous growth potential over the long term. Taking these factors into account, investment into non ferrous metals stocks from a long-term perspective are likely to yield attractive returns. However, investors need to take into account the concerned company’s historical performance and its overall cost structure.

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