 "Metals and Mining")
Metals and mining companies earned a windfall thanks to the high prices of industrial metals and ores in the first half of financial year 2021-22 (H1FY22), with listed firms in the space reporting all-time high net profits of nearly Rs 82,500 crore, a stellar jump from Rs 6,000 crore in H1FY21 and Rs 58,700 crore in H2FY21.
Thanks to this, metals and mining companies accounted for a fifth of India Inc’s combined net profit in H1, up from 4.2 per cent in H1FY21 and more than double the 10-year average of 9.5 per cent. However, the companies accounted for only 10.8 per cent of the combined net sales of all listed firms, just a notch above their 10-year average of around 9.2 per cent.
In comparison, all 4,166 listed companies whose numbers were available reported a combined net profit of Rs 4.1 trillion in H1FY22, up 185 per cent from Rs 1.44 trillion in the H1FY21.
The combined net sales of the 202 metals and mining companies in the Business Standard sample jumped 66.7 per cent year-on-year (YoY) in H1FY22 to Rs 5.54 trillion from Rs 3.32 trillion in H1FY21. In the same period, the combined net sales of all listed companies rose 32.7 per cent YoY to Rs 51.1 trillion from Rs 38.55 trillion in H1FY21.
The biggest jump in earnings was reported by integrated steel producers like Tata Steel, JSW Steel, and Steel Authority of India (SAIL). The combined net profit of listed iron and steel producers was a record Rs 53,100 crore in H1FY22, against a net loss of Rs 2,077 crore in H1FY21 and net profit of Rs 30,780 crore in H2FY21.
The steel makers’ combined net sales rose 76.3 per cent YoY in H1FY22 to Rs 3.24 trillion from Rs 1.84 trillion in H1FY21. The numbers also suggest that metals and mining companies now have greater pricing power than in the previous metals bull-run that ended in 2011.
This shows in the sharp rise in operating margins over the past 18 months, despite a fairly benign cost environment for metals producers. This is especially true for steel makers, who reported their best-ever core operating margins of 25.4 per cent of net sales in H1FY22, more than double the 10.7 per cent a year ago.
The industry’s overall operating or Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin reached a record high of 26.2 per cent in H1FY22, up from 15.8 per cent in H1FY21 and 24.3 per cent in H2FY21. The core operating margins, which excludes other income, grew even faster. Core operating profit rose nearly 1,150 basis points (bps) from 12.3 per cent of net sales in H1FY21 to 23.7 per cent of net sales in H1FY22.
In comparison, metals and mining companies’ input costs to net sales ratio, including raw materials and power and fuel costs, declined 60 bps in the last year. Every Rs 100 worth of metals and ores consumed Rs 46.4 worth of raw materials and energy in H1FY22, down from Rs 47 in H1FY21.
Moderation
Analysts expect a moderation in the earnings growth and operating margins in the metals and mining space as prices are now off the lows and operating cost has begun to inch up.
This is expected to provide some relief to user industries such as automobiles, capital goods, and consumer durables, which have seen a sharp decline in operating margins due to higher metal prices.
