At 02:19 PM; Nifty Metal index, the largest loser among sectoral indices, down 2.6% at 3,309, as compared to 0.86% decline in Nifty 50 index. The metal index slipped 11% from its recent high level of 3,714 on September 14, 2018, against a 7% decline in the benchmark index.
Ferrous companies continued their impressive run in Q2FY19 delivering 60% plus YoY EBITDA growth, despite macro headwinds of trade brawls, China slow down and strengthening USD.
Despite lower benchmark prices and higher raw material cost QoQ, the profitability of ferrous companies was not much impacted due to favourable product mix; operating leverage; and iron ore self-sufficiency. In the case of non-ferrous companies, however, lower LME prices and higher coal cost impinged performance.
Despite impressive earnings growth, the analysts at Edelweiss Securities see a clear dichotomy between consensus EBITDA progression and stock price movement.
“We find that valuations have come off for all companies in the sector. This is particularly stark in case of ferrous companies. Due to macro concerns, we expect valuations to remain subdued despite earnings growth,” the brokerage firm said in result preview.
The industry expert expects domestic steel demand to grow lower-than-expected as a cloud of uncertainty has emerged over infrastructure spending.
“There is a bit of a slowdown and issue of non-payment in road and few other sectors, too. These issues are likely to be short-lived. However, the longer-term outlook for steel sector is very positive,” according to Dr. A.S.Firoz, Chief Economist at the Economic Research Unit of the ministry of steel.
“Going ahead, the demand for steel from user industries is likely to keep the prices firm during H2FY19. The domestic prices however could get impacted by the demand-supply situation in China (the world’s largest steel producer). The demand for steel in China remains usually weak during winters as construction slows down in the country,” CARE Ratings said in steel sector update.
This, in turn, can bring some moderation in international steel prices. On the supply side, China would undertake some production cuts during the winter season to control pollution which may restrict sharp fall in international steel prices, it added.