InvestorQ : I am holding shares of Tata Steel and Vedanta in sizable quantities. I want to know, what should I do ahead of the September quarter results?
Chandralekha Desai made post

I am holding shares of Tata Steel and Vedanta in sizable quantities. I want to know, what should I do ahead of the September quarter results?

Answer
image
Mitali Bhutta answered.
2 years ago
Follow

While the stocks have been under pressure, you must remember that these stocks have corrected sharply in the last one year and are down more than 50% in a short span of time. However, your decision to sell or not may have to be predicated on several factors.

To begin with, most of the major steel producers in India are expected to report a 25-50% fall in earnings before interest, taxes, depreciation and amortisation (EBITDA) for the September quarter. This fall in profits will be largely driven by pricing weakness across ferrous metals during the period. The weakness in China had kept most of the metal stocks quite weak and that is unlikely to change quickly.

Low domestic demand leading to higher exports will further impact margins of steel players. Earnings of non-ferrous companies, including Hindalco, Vedanta and NMDC, are expected to take a setback owing to the drop in LME prices, which serves as the benchmark. The fall in prices has pronounced in the case of aluminium and copper.

The volumes in the September quarter are likely to come under pressure for all steel players. In fact, this will apply to all steel players as well as the non-ferrous manufacturers. This coupled with Rs.4,000-5,000 per tonne decline on price realisation is likely to lead to a muted EBITDA per tonne. In fact, one can logically assume fall in profits to the tune of nearly 15-20% in this quarter. If you are holding on to Tata Steel or Vedanta, the only positive is that they have corrected sharply in the last few months. However, it is hard to see any immediate or even medium term traction in these stocks. Even though the dividend yield is attractive in most cases, the turnaround in price of these stocks will need a big push

10 Views