Metal stocks have been battered by the steep fall in commodity prices and Vedanta Resources Plc’s listed firms in India are no exception. The group announced production numbers for the September quarter, showing a mixed trend in output growth.
Though investor attention is tuned to bearish price trends, growth in output may become a saviour for metal companies in such a phase.
Prices of non-ferrous metals have recovered a bit last week, but it’s too soon to say the trend has reversed.
The Indian headquarters of Vedanta Resources Plc, which houses the company’s Sterlite Industries (India) Ltd. unit, in Mumbai. Photo by Bloomberg.
During the September quarter, Sterlite Industries (India) Ltd, the group’s flagship, saw copper cathode output rise 18% from a year ago and 28% from the preceding quarter. Output in the June quarter had been affected by the quality of concentrate processed and lower capacity utilization. Its Indian copper business will be unaffected by falling prices on the London Metal Exchange (LME), as it runs a custom smelting operation. Profitability depends on treatment and refining charges. Higher output, stable trends in these charges and revenue from by-products should see the copper business deliver a good performance, though rising operating costs could take some sheen off from it.
Sterlite’s aluminium business (Bharat Aluminium Co. Ltd) continues to disappoint, with output down by 1.6% from a year ago and by 7.7% from the preceding quarter. The company has said higher coal prices have affected business’ costs.
Hindustan Zinc Ltd’s refined zinc output fell by about 4% from the preceding quarter, while lead output was up by 6.3% and silver by 5.3%. Silver will continue to be a key contributor to this business’ growth.
Sterlite Energy Ltd, also a subsidiary of Sterlite, has seen power output rise by 11% on a sequential basis, but the company said it has got lower tariffs for power sold in the first half of the fiscal. Lower tariffs and higher coal prices are likely to affect its power business profits during the quarter.
Sesa Goa Ltd’s investors will want to know the firm’s plans to tackle the drop in its output because of the Karnataka iron ore mining ban. Iron ore output from its own mines fell 54% during the quarter. The effect on its financial performance will become visible from the December quarter.
In the September quarter, it has sold down inventories, and sales from its own mines are 13% higher from a year ago. But the firm had exited a third-party mining operation in November, which will see reported sales volume decline.
Volatility in metal prices, rising input costs and flagging production in some of Vedanta’s units will remain chief concerns for investors. On the positive side, capacity expansion plans at a few of its business units will start operations in the second half, resulting in higher output, but the full impact will be visible in 2012-13. A few projects have been delayed, with start-up postponed from the second to the third quarter. Further delays may worry investors. In the next few quarters, investors will watch LME prices (except for copper) to see how the Vedanta group companies perform. If the trend remains downward, so will sentiment.
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