The metals sector posted
its worst performance in two years during the
quarter-ended December 2008, as profits plunged on
higher costs, while
sales fell slightly, data from 128 companies show.
Aggregate net sales fell by 3% but net profit nearly
halved compared to the year-ago period, dragged down
by higher raw material and power costs as well as
interest payments on loans which were taken to
finance expansion.
Profits during the December quarter were the lowest
in the past two years and around a third of the
average during the previous eight quarters.
Steel firms did better in terms of revenue growth
compared with non-ferrous and ferroalloy makers as
the government stepped in with duty increases to
protect local steel firms. Aggregate operating
profit margins in the metals sector almost halved to
13.4%, with steel firms bearing the brunt.
Indian steel makers source most of their raw
material through long-term contracts which are
usually negotiated at the beginning of the year.
Though some suppliers reduced their prices, it was
not sufficient.
Furthermore, steel producers have taken large loans
to finance their expansion plans. With demand
slowing, higher interest expenses are hurting their
margins.
For instance, JSW Steel reported a 100% jump in
interest cost, which wiped out almost all of its
operating profit and resulted in a consolidated loss
of Rs 187 crore. JSW Steel’s total debt has almost
tripled in the past two years.
For non-ferrous companies, where power and fuel
costs account for about a fifth of their operating
costs, the doubling of power bills and price
declines have brought down the operating margins
substantially. For example, the government-run
National Aluminium Company saw its operating profit
being halved during the quarter as power and fuel
costs rose by 45%.
The segment which outperformed both in terms of
topline and profit is mining and minerals, with net
sales growing by 27% and profit 16% compared to
year-ago levels. National Mineral Development
Corporation (NMDC) contributed largely towards this
robust growth.
NMDC usually enters into long-term agreements with
domestic and global firms at the beginning of the
year. Higher realisation and collection of arrears
from overseas customers on account of previous price
revisions were some of the factors responsible for
the robust growth.
