Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  
Google
Web www.equitybulls.com
Research

| More

Domestic manganese-based ferro alloy players' profit margins are unlikely to improve significantly in the near term as input costs remain high: ICRA

Posted On: 2023-03-09 13:56:51 (Time Zone: IST)


ICRA highlighted that the profit margins of the domestic manganese-based ferro alloy industry jumped to a record high in FY2022. However, the momentum has fizzled out in the current fiscal, as declining realisations, along with input cost pressures have squeezed margins to abnormally low levels. According to ICRA's latest note (Link), manganese-based domestic ferro alloy prices corrected by ~35% between April and December of 2022, and consequently, operating profit margins of the industry[1] nosedived to 8% in Q3 FY2023 from a high-watermark of 40% recorded in Q3 FY2022.

Commenting on the industry trend, Mr. Jayanta Roy, Senior Vice-President & Group Head, Corporate Sector Ratings, ICRA said, "Easing of Covid restrictions in China helped improve market sentiments in the world's largest producer and consumer of steel, leading to domestic ferro-manganese prices increasing by around 7.5% in Q4 FY2023 till date. However, a disproportionately high increase in input costs has eroded most of the realisation gains witnessed so far. Therefore, the industry profit margin is likely to remain under pressure in Q4 FY2023 as well."

Manganese ore, power, and coke are the key cost drivers in the production of manganese-based ferro alloys accounting for ~35-40%, ~20-30%, and ~10-15% of the overall cost respectively. With coal prices remaining at elevated levels, power tariffs in key producing regions in West Bengal and Andhra Pradesh have risen by ~20% year-on-year (YoY) in FY2023. For producers who have captive power generation facilities, the fuel cost is expected to witness an even steeper increase of ~40% YoY in FY2023 due to the coal price increase. These sharp increases in energy costs have adversely impacted the industry's cost competitiveness. On the other hand, a structural disadvantage for the domestic manganese-based ferro alloy industry is the high import dependence on high-grade manganese ore. Imported manganese ore prices have rallied by ~30% in Q4 FY2023 till date, which, along with the increase in spot met coke prices by ~16% since mid-January 2023, is expected to keep profit margins under strain in the next few quarters unless the external demand environment improves materially, leading to a further increase in ferro alloy prices.

In the global context, India is the world's second largest producer of manganese-based ferro alloys, and also its largest exporter globally. Notwithstanding falling steel production globally, exports of Indian manganese-based ferro alloys have surprisingly remained strong in the current fiscal. Commenting on this trend, Mr. Roy added: "Indian mills have benefitted from the supply disruption from Ukraine, which used to be the world's second largest exporter of manganese-based ferro alloys. After growing by 59.3% YoY in FY2022, Indian export of manganese-based ferro alloys further increased by 4.0% in 9M FY2023 as domestic producers filled up the vacuum left by Ukraine."

ICRA's channel checks suggest that manganese-based ferro alloy producers have announced capacity expansions amounting to 10-15% of the prevailing domestic-installed capacity of ~3.2 million tonne per annum. Therefore, unless the external demand environment improves meaningfully, there is a possibility of a supply glut which can keep industry profit margins under check going forward. While many cost-inefficient producers restarted/scaled-up operations following the earnings surge in FY2022, the road could be bumpier for high-cost producers and their capacity utilisation rates are expected to come down with earnings nosediving in the current year.


Click here to send ur comments or to feedback@equitybulls.com

Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only. www.equitybulls.com, its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. www.equitybulls.com or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.





Other Headlines:

CRISIL Ratings: Agrochemicals sector to see 7-9% growth amid modest exports

SBI Capital Markets: RBI Monetary Policy Dec'24 - RBI faces arduous task of managing all dynamics: Liquidity, Currency, Growth and Inflation

SBICAPS Monthly Ecocapsule Dec'24 : FY25 - A TALE OF TWO HALVES OR ONE OF FULL DESPAIR? - Executive Summary

CRISIL Ratings: Revenue growth of organised luggage makers to halve to 8-10%

CRISIL Ratings - Cement demand to grow at a moderate pace of 7-8% this fiscal

CRISIL Ratings: For small finance banks, RoA to dip ~40 bps this fiscal

Securitisation volumes witness strong growth; likely to reach ~Rs. 60,000 crore in Q2 FY2025: ICRA

CRISIL Ratings: Operating losses of state discoms to stay high despite 15-20% dip

CRISIL Ratings: Tamil Nadu garment exporters to see 8-10% revenue growth

CRISIL MI&A: Inflated natural rubber prices to puncture tyre maker margins

Infrastructure bond issuances by public sector banks to drive banks' bond issuances to an all-time high in FY2025: ICRA

CRISIL Ratings: Apparel retailers to stitch 8-10% growth with festivals, fast fashion

CRISIL Ratings: For ARCs, rising power consumption to boost recoveries from stressed operational thermal plants

Views of ICAI on SA 600 vs ISA 600

CRISIL Ratings: Wagon makers set to roll in ~20% revenue growth this fiscal

CRISIL Ratings: Basmati industry to see revenue grow ~4% on a high base this fiscal

CRISIL: Pharmaceutical sector set for 8-10% revenue growth this fiscal

CRISIL Ratings: Flexible packaging players' credit profiles to stay subdued this fiscal

Industry credit expected to grow over 12 per cent: FICCI-IBA Bankers' Survey

CRISIL Ratings: Decadal-low duty to push gold jewellery retailers' revenues up by 22-25%

CRISIL Ratings: Education loan AUM of NBFCs to top Rs 60,000 crore this fiscal

Evolving asset quality risks to impact growth and profitability of microfinance: ICRA

Near-term Consolidation; Focus Remains on Style & Sector Rotation - Axis Securities

CRISIL Ratings: Paper packaging volume to grow, but profitability to plumb lows

CRISIL MI&A: Corporate revenue growth likely moderated to 5-7% in April-June, the slowest in 15 quarters

CRISIL Ratings: Revenue growth of auto dealers to enter the slow lane this fiscal

Declining liquidity coverage ratios to slow down credit growth for banks: ICRA

CRISIL Ratings: Road developers to see slower revenue growth of 5-7% next fiscal

CRISIL Ratings: Small finance banks to grow advances 25-27% this fiscal

Global monetary easing to pick up pace - Puneet Pal, Head-Fixed Income, PGIM India Mutual Fund

Kotak Institutional Equities: Strategy: 1QFY25: Converging trends

CRISIL Ratings: Cement makers line up ~Rs 1.25 lakh crore capex over fiscals 2025-27

CRISIL Ratings: Urea import dependency to fall to 10-15% from this fiscal

CRISIL Ratings: 20% ethanol blending goal means more sugarcane utilisation

Kotak Institutional Equities: Automobiles & Components: 1QFY25 review: Steady quarter; demand outlook weakening

CRISIL MI&A: Macroeconomics First Cut - Goods exports fall, services soften

Kotak Institutional Equities: Consumer: 1QFY25 review- Uptick in staples, continued weakness in discretionary

CRISIL Ratings: Despite cash disbursement restriction gold-loan NBFCs shine

SBICAPS Report - The Green Pill: Labelled Bond Issuances, ESG Indices, Global Sustainable Funds

We expect the 10 yr benchmark bond yield to keep drifting lower gradually - PGIM India Mutual Fund

Strategy: Faith, froth and fundamentals by Kotak Institutional Equities

Earnings growth should be the key driver of returns hereon - Vinay Paharia - CIO, PGIM India Mutual Fund

IT Services: ERD services: Auto pulse-challenges ahead - Kotak Institutional Equities

Banks, Diversified Financials : Strong on expected lines across BFSI - Quarterly Review - Kotak Institutional Equities

Metals & Mining: SC ruling-empowers the states; marginal negative impact - Kotak Institutional Equities

CRISIL Ratings: Revised deposit norms unlikely to be onerous for HFCs

CRISIL Ratings: 6 gigawatt renewable energy storage to be added by fiscal 2028

CRISIL Ratings: Thermal share in power generation to dip over 500 bps next fiscal

Indian bond market issuances exceeded $105 billion, $25 billion new equity issued in FY24 - Shri Pramod Rao, ED, SEBI

One third of Nifty 100 companies hire thousands of young talent on apna.co


Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2020