Metal sector results preview for Q2FY13: Kotak Securities

Kotak Securities has come with its September`12 quarterly earning estimates for metal & mining sector. According to research report, the steel consumption growth has dropped sharply in August, according to JPC data registering a meager 3.7% Y/Y growth compared to a 7.8% growth during the April-July period due to slowing end user demand. Even for high demand growth sector automobile, sales growth in India during Apr-Aug 2012 have plummeted to just 4.6%Y/Y vs. 14% growth for FY12. India's infrastructure sector output grew just1.8% Y/Y in July. With Indian GDP growth seems to be slipping to sub 6% levels, it would adversely hit domestic steel demand growth.

We believe that the spike in apparent consumption earlier this FY could have been indeed misleading as several large steel companies had reportedly seen significant jump in inventories during Q1FY13. Also, Indian steel imports have soared 38.6%Y/Y to 3.32mt in Apr-Aug 2012. In FY12, India imported 6.8mt of finished steel, marginally higher than 6.7mt in FY11.

We continue to remain concerned on domestic steel industry demand-supply balance and in turn steel prices over coming quarters due to scheduled commissioning of new steel plants and as steel mills in Karnataka return to normal production levels on improved iron ore availability from renewed mining production in the state in next 3-4 months.

	Revenues (Rs Mn)			PAT (Rs Mn)
	Q2 FY13	Q2 FY12	YoY (%)	Q2 FY13	Q2 FY12	YoY (%)
Tata Steel	300,223	327,979	-8.5	2,570	1,390	84.8
Hind Zinc	27,150	26,368	3	14,212	13,447	5.7