Bharat Heavy Electricals
BHEL operates in three business sectors--power, industry, and overseas. The company manufactures over 180 products under 30 major product groups and caters to core sectors of the Indian economy viz., power generation & transmission, industry, transportation, telecommunication, renewable energy, etc.
Given the need to build huge capacities in the power sector, BHEL being the largest power equipment manufacturer in India, is the major beneficiary. The company’s order book stands at Rs 78,000 crore.
BHEL has completed first phase of expansion; it has increased its capacity by 10,000MW by December 2007. In the second phase, the company targets 15,000MW which will be completed by December 2008.
Eleventh five year plan has envisaged power capacity additions of 78,000MW of which tenders for 50,000MW have already been floated. The balance 28,000MW is in process and the government is likely to issue orders over next 12 months.
In December 2007, BHEL has acquired government owned sick company Bharat Heavy Plates & Vessels. BHEL plans to invest Rs 275 crore as capital expenditure apart from investing Rs 34 crore as equity in the company.
BHPVL will add to the capacity of industry boilers division of BHEL. BHEL can also benefit in terms of tax breaks on accumulated losses of BHPVL.
BHEL has recorded a topline growth 14.4 per cent in October-December 2007-08 and earnings growth of 15.6 per cent. The EBITDA margin eroded by 132 basis points due to higher staff costs.
BHEL’s topline grew at a CAGR of 25.5 per cent during FY03-07. Considering the huge demand for power sector in India and the huge capacity build up in the eleventh plan period, Keynote believes BHEL will continue on a similar growth trajectory.
As per consensus estimates the topline is expected to grow at a CAGR of 28.7 per cent over FY07-09. The stock trades at 27.2x FY08E and 19.1x FY09E earnings.
Larsen and Toubro
L&T is an engineering and construction major in India. Engineering and construction business is the largest revenue earner, with a share of 68 per cent of 2006-07 in the consolidated revenues.
Given its track record and size, L&T is well poised to capitalise on the increasing infrastructure activities in India as well as globally (mainly gulf region).
The company currently has an order book of Rs 49,575 crore, up 39 per cent over previous quarter. The total order inflow was Rs 13,019 crore during this quarter. Exports contribute 13 per cent of total order book.
After a low of 8.7 per cent in 2004-05, L&T’s EBITDA margins improved substantially in the last two years, to reach 13.4 per cent in 2006-07. Going forward, the company expects only a limited margin expansion on account of the higher contribution of the E&C division in the revenue mix.
On the positive side, the company enjoys a strong pricing power due to robust demand. Also, its emphasis on increasing the manufacturing content in its projects can help improve margins.
L&T is also into building small sized ships (1000DWTs) at Hazira. It plans to start production of large sized ships (150,000DWTs to 350,000DWTs). Estimated capital expenditure of Rs 2,000-2,500 crore, with margins of 15 per cent. The company will likely to build hi-tech ships like LNG carriers.
The company is also likely to unlock value by listing its subsidiaries L&T Infotech (tentatively post September 2008), L&T Finance in 2010, L&T IDPL in 2011.
The company expects a revenue growth 25-30 per cent in 2007-08 backed by strong order inflow. The company expects growth in order inflows in the range of 25-30 per cent.
The stock trades at 35.9x FY08E and 26.3x FY09E earnings.
National Thermal Power Corporation
NTPC is India’s largest and most efficient power utility, with an average plant load factor of 89 per cent. The company generates power from thermal resources (coal and gas). Thermal power accounted for around 82 per cent of 2006-07 revenues.
In FY07, NTPC added capacity of 3155MW. It plans to aggressively increase its power generating capacity over the next five years, from 27,904MW to 50,004MW and 75000MW by 2017. Plant orders for 13360MW have already been placed while orders for 9000MW plants will be placed throughout the year.
It is also diversifying from its core area of thermal power generation to power generation from other resources like hydro, nuclear and non-conventional renewable resources. The company expects the share of thermal power in its installed capacity to decline from 82 per cent in FY07 to 66 per cent in FY17. The strategic diversification in phased manner will improve EBITDA margins, going forward.
Besides power generation, NTPC is also foraying into power distribution, as it plans to have 1000MW capacity by FY12. The company also expects its trading volumes to increase more than 4-fold from 2.66 billion units to 10 billion units by FY12.
It plans to improve its sourcing capability of raw materials, as it intends to bid for coal mines which will have capacity of 15mn tpa by FY12 and 47mn tpa by FY17.
Only recently, the company has acquired TELK from Kerala government to manufacture, market and service transformers.
In Keynote’s view, a positive investment scenario in the power sector has been building up, NTPC, with its good track record would be a good investment opportunity. With its aggressive expansion plans, diversification in terms of power generation from thermal to other alternative energy sources would likely improve margins.
While its diversification into the transformer businesses will improve the returns to shareholders (As per regulations the utilities have 14 per cent cap on their ROE, but due to the diversification to transformer segment would help increase ROE)
The stock trades at 20.7x FY08E and 19.0x FY09E earnings.
Reliance Energy
The company currently distributes 28 billion units of electricity to cover 25 million customers in an area spanning over 124,300 sq. kms.
Given the backdrop of the huge power shortage (peak power deficit of around 14 per cent) in India, Keynote expects significant activities in the sector over the next decade and has a positive view on the sector.
REL is planning to expand its generation capacity from current 1,000MW to 15,000MW over the next 4-5 years (an investment of Rs 60,600 crore). Considering the track record of the Reliance ADA group, Keynote believes this exponential increase in capacities will create substantial value for investors.
The company’s EPC business saw a strong growth in 2006-07. REL has entered in an agreement with Shanghai Electric Power for equipment supply. This agreement provides a cost advantage to the company as SEPCO’s equipment costs are 10-15 per cent cheaper than that of Indian component suppliers.
REL has already secured Sasan project (Ultra mega power project) following the disqualification of Lanco Infratech.
REL has 44.96 per cent stake in recently listed Reliance Power. Reliance Power plans to generate 27000MW power by 2017. The company has a market cap of Rs 72,800 crore.
Recently, the company has announced a buy-back of five million shares for Rs 800 crore (Rs1600 per share).
Keynote believes the high governmental interference in the sector, availability of fuel, and slow pace of reforms are the major concerns. At the company level, besides these concerns, timely execution is critical.
The stock trades at 29.6x FY08E and 25.2x FY09E earnings.
Tata Power
It has a presence in all the segments of the power sector, viz. generation (thermal, hydro, solar and wind), transmission and distribution. In 2006-07 the company won the bid for the first 4000MW Ultra mega power project at Mundra (Gujarat) and has successful public-private partnerships in generation, transmission and distribution - North Delhi Power with Delhi Vidyut Board for distribution in North Delhi, Powerlinks Transmission with Power Grid Corporation of India for evacuation of Power from Tala hydro project in Bhutan to Delhi and Maithon Power with Damodar Valley Corporation for a 1050 MW mega power project.
Indian power sector is facing a shortage of 14,000MW at peak hours. 11th plan has envisaged a power capacity addition of 132,000MW by 2012. Even if the targeted capacity addition is achieved, India is likely to face a shortage of 30,000MW due to strong economic growth.
TPCL is India's largest power utility in private sector with strong capability of executing large projects. Keynote believes the company's aggressive forays into mega power projects, strategies such as diversifying Maharashtra power projects, intentions to enter into nuclear power projects and hydel projects will help improve the revenue streams over a period of time. The brokerage is also positive about the company's track record of nearly nine decades in India.
TPCL has plans to expand the generating capacity from 2,300MW to 10,000MW by 2012. The capital expenditure planned in respect of the same is Rs 10,000 crore over next three years, of which Rs 2600 crore will be during 2007-08.
In 2006-07, the company won the bid for 4,000MW Mundra Ultra Mega power project at a levelised tariff of Rs 2.26 per unit. The cost of project is expected to Rs 17,000 crore, which it will finance through a debt to equity mix of 80:20.
For sourcing coal for the project, TPCL has recently acquired a 30 per cent stake in Indonesian thermal coal companies owned by PT Bumi Resources. It has signed an off-take agreement which entitles it to purchase 10 million tonnes coal per annum for an initial period upto 2021, which is extendable thereafter.
Maithon Power (a TPCL: Damodar Valley Corporation joint venture in proportion of 74:26) would likely achieve financial closure in the current year while production will commence during 2011.
Its Trombay plant of 250MW will be commissioned by second half of 2008 as per schedule. 78 per cent of 2006-07 revenues consist of revenues from Maharashtra and surrounding areas. Going forward, since most of the new capacities are coming outside Maharashtra, Keynote believes the revenue share of other parts of the country will improve.
The stock trades at 28.5x FY08E and 25.0x FY09E earnings.
Tuesday, April 08, 2008
Thermal units set to get less coal supplies
In an unprecedented move the Ministry of Coal has reduced monthly coal allocation to the power sector for the April-June quarter, raising the possibility of a severe power crisis during the ensuing summer.
The Standing Linkage Committee (SLC) in the Ministry of Coal has brought down the amount of coal to be given to the thermal power plants during the summer months even though coal-based power generation is expected to go up by 12.2 per cent during the first quarter.
Alarmed over the situation, the Central Electricity Authority (CEA) has written to the Coal Ministry to increase allocation to power plants to avoid a crisis situation.
Reminding the Coal Ministry of its earlier promise of providing additional coal to the power plants during the first quarter, the CEA, in a letter to the Ministry, has said that “we were given the impression that there is a stock of around 46 million tonnes at the mines, which is more than the norms. Coal companies and the Ministry of Coal were in agreement to supply around 8 to 10 million tonnes additional coal during the quarter.”
Reduced quantum
The CEA has also pointed out that in case of Coal India and Singareni Collieries, the quantum they have to supply to the power sector is lower than what they gave last year. On the other hand, allocations from captive mines have been increased substantially, which they may not be able to fulfil.
Taking a note of ground realities that the proposed amount had not been made available in the past year, the CEA states that “the materialisation in the past has been hovering around 90 per cent. Therefore with the proposed linkage (of 31.374 million tonne), actual receipt will be of the order of 28.24 million tonnes only.”
CEA’s needs
CEA’s requirement for coal generation per month is estimated at 30.40 million tonnes and another 4 million tonnes for stock build-up while another 0.54 million tonnes is estimated as standard transit loss. This totals to 34.94 million tonnes per month as against SLC’s proposed monthly linkage of 31.374 million tonnes.
Stating that stocks at the power stations are already low at around 10 million tonnes against the normative condition of 22 million tonnes, the CEA has urged the Coal Ministry to allocate 34.7 million tonnes per month by increasing the linkage by 3.33 million tonnes.
Coal Ministry officials, however, are of the opinion that “in case of any shortage, the power companies can always import under the open general licence.
The Standing Linkage Committee (SLC) in the Ministry of Coal has brought down the amount of coal to be given to the thermal power plants during the summer months even though coal-based power generation is expected to go up by 12.2 per cent during the first quarter.
Alarmed over the situation, the Central Electricity Authority (CEA) has written to the Coal Ministry to increase allocation to power plants to avoid a crisis situation.
Reminding the Coal Ministry of its earlier promise of providing additional coal to the power plants during the first quarter, the CEA, in a letter to the Ministry, has said that “we were given the impression that there is a stock of around 46 million tonnes at the mines, which is more than the norms. Coal companies and the Ministry of Coal were in agreement to supply around 8 to 10 million tonnes additional coal during the quarter.”
Reduced quantum
The CEA has also pointed out that in case of Coal India and Singareni Collieries, the quantum they have to supply to the power sector is lower than what they gave last year. On the other hand, allocations from captive mines have been increased substantially, which they may not be able to fulfil.
Taking a note of ground realities that the proposed amount had not been made available in the past year, the CEA states that “the materialisation in the past has been hovering around 90 per cent. Therefore with the proposed linkage (of 31.374 million tonne), actual receipt will be of the order of 28.24 million tonnes only.”
CEA’s needs
CEA’s requirement for coal generation per month is estimated at 30.40 million tonnes and another 4 million tonnes for stock build-up while another 0.54 million tonnes is estimated as standard transit loss. This totals to 34.94 million tonnes per month as against SLC’s proposed monthly linkage of 31.374 million tonnes.
Stating that stocks at the power stations are already low at around 10 million tonnes against the normative condition of 22 million tonnes, the CEA has urged the Coal Ministry to allocate 34.7 million tonnes per month by increasing the linkage by 3.33 million tonnes.
Coal Ministry officials, however, are of the opinion that “in case of any shortage, the power companies can always import under the open general licence.
Green groups oppose World Bank's India coal plant
Environmental groups called on the World Bank to delay a decision on Tuesday on funding for a $4.2 billion coal-fired power plant in India until more analyses of costs and environmental impact are done. In a letter to the United States representative at the World Bank, Whitney Debevoise, six environmental groups said the bank could not effectively fight climate change while also funding high carbon-emitting projects, such as the 4,000 megawatt Tata Mundra coal project in Gujarat state.
The International Finance Corp (IFC), the bank's private-sector lender, said its $450 million proposed funding for the project was responding to India's enormous need for more and affordable electricity. It said the coal plant, being developed by Tata Power Co Ltd , India's largest private-sector power firm, would use new "super-critical" technology, which cut carbon emissions by 40 percent compared to other plants in the country. The project is likely to provide electricity to 16 million users in five states in western and northern India.
"The key is access to power and there are many poor people who still don't have access to power in India and it is getting them power as inexpensively as possible by using responsible technology," Rashad Kaldany, IFC head for global infrastructure, said in an interview. The environmental groups argue that the Mundra region where the plant will be located has huge solar potential, while coal for the project would need to be imported from Indonesia and other countries at rapidly rising costs.
They added that coal's previous cost advantages have largely vanished with rising prices, while fuel and construction costs for "super-critical" coal-fired power plants have escalated. The groups include the Environmental Defense Fund, Friends of the Earth US, National Wildlife Federation, Bretton Woods Project and the International Accountability Project. Kaldany said IFC had conducted a thorough evaluation of the project and concluded that a coal plant was by far the least expensive option at this stage to meet India's 160,000 MW power needs over the next decade.
ALTERNATIVE SOLUTIONS
He said IFC analysis also looked at alternatives to coal including wind technology, which would have meant an investment of about $24 billion. "This is by far the least expensive and to try to do something like either wind or solar would cost huge amounts in terms of subsidies. The question is where would these subsidies come from?" Kaldany said.
"If we're going to provide a consistent base load power, which is what the country needs. Our analysis shows that unless you have huge subsidies -- several billions of dollars -- you cannot do alternative technology," he added. Kaldany said where it could, IFC would support renewable energy sources where it was commercially viable. "There are opportunities for alternative types of technologies -- wind and solar -- but at the scale it is required, it is just not available to deploy it," he said.
Kaldany acknowledged carbon emissions from the Tata Mundra coal plant would be large at 23 million tons per year of Co2 but less than 27 million tons emitted by current plants. Carbon capture and storage technology, which absorbs plant heating carbon dioxide and stores it safely underground, is not yet available for power plants, he said. "No such technology is proven for us to require it, so it's a Catch 22," he said, adding that carbon capture was only used on a commercial basis by the oil and gas industry.
"It is not ready yet to be deployed for power." "Emerging markets and developed markets are facing this conundrum -- the technology is not ready or is hugely expensive, which begs the question: who is going to pay? "It is fine for developed country to impose additional costs on itself but for the poor country it is not obvious to impose that additional cost on them," Kaldany added.
The International Finance Corp (IFC), the bank's private-sector lender, said its $450 million proposed funding for the project was responding to India's enormous need for more and affordable electricity. It said the coal plant, being developed by Tata Power Co Ltd , India's largest private-sector power firm, would use new "super-critical" technology, which cut carbon emissions by 40 percent compared to other plants in the country. The project is likely to provide electricity to 16 million users in five states in western and northern India.
"The key is access to power and there are many poor people who still don't have access to power in India and it is getting them power as inexpensively as possible by using responsible technology," Rashad Kaldany, IFC head for global infrastructure, said in an interview. The environmental groups argue that the Mundra region where the plant will be located has huge solar potential, while coal for the project would need to be imported from Indonesia and other countries at rapidly rising costs.
They added that coal's previous cost advantages have largely vanished with rising prices, while fuel and construction costs for "super-critical" coal-fired power plants have escalated. The groups include the Environmental Defense Fund, Friends of the Earth US, National Wildlife Federation, Bretton Woods Project and the International Accountability Project. Kaldany said IFC had conducted a thorough evaluation of the project and concluded that a coal plant was by far the least expensive option at this stage to meet India's 160,000 MW power needs over the next decade.
ALTERNATIVE SOLUTIONS
He said IFC analysis also looked at alternatives to coal including wind technology, which would have meant an investment of about $24 billion. "This is by far the least expensive and to try to do something like either wind or solar would cost huge amounts in terms of subsidies. The question is where would these subsidies come from?" Kaldany said.
"If we're going to provide a consistent base load power, which is what the country needs. Our analysis shows that unless you have huge subsidies -- several billions of dollars -- you cannot do alternative technology," he added. Kaldany said where it could, IFC would support renewable energy sources where it was commercially viable. "There are opportunities for alternative types of technologies -- wind and solar -- but at the scale it is required, it is just not available to deploy it," he said.
Kaldany acknowledged carbon emissions from the Tata Mundra coal plant would be large at 23 million tons per year of Co2 but less than 27 million tons emitted by current plants. Carbon capture and storage technology, which absorbs plant heating carbon dioxide and stores it safely underground, is not yet available for power plants, he said. "No such technology is proven for us to require it, so it's a Catch 22," he said, adding that carbon capture was only used on a commercial basis by the oil and gas industry.
"It is not ready yet to be deployed for power." "Emerging markets and developed markets are facing this conundrum -- the technology is not ready or is hugely expensive, which begs the question: who is going to pay? "It is fine for developed country to impose additional costs on itself but for the poor country it is not obvious to impose that additional cost on them," Kaldany added.
Fortis Group cos SRL Ranbaxy & Fortis Healthworld planning stake sale to PEs
Fortis Group companies—diagnostic chain SRL Ranbaxy and retail chain Fortis Healthworld—are considering a strategic alliance to offload minority stakes to private equity (PE) players to part fund their respective expansion plans.
A source told ET, “SRL Ranbaxy is in advanced talks with a few PE firms as part of the pre-IPO sale. The company is looking at forging a strategic alliance with Fortis Healthworld, wherein the latter would also divest some of its stake.
There is a possibility that a PE fund may get to pick up stakes in both the companies. Officials of both Fortis Healthworld and SRL Ranbaxy—separate companies of the Fortis Group — were not available for comment.
According to industry sources, the diagnostic and retail chain companies share a lot of synergy being in the same sector. As such, SRL Ranbaxy can leverage its brand value and support its pharmacy retail partner, which is a relatively new model in India.
SRL Ranbaxy is planning to float an IPO to raise around Rs 200-250 crore by the end of the year. It plans to offload around 10-20% stake to PE firms as a pre-IPO sale. The company would use the fund from the issue to add about 35 laboratories across India and scale its network to over 100 laboratories in the next few years. At present, it has 750 collection centres and 40 laboratories.
Fortis Healthworld has so far not finalised its plans on going public. However, the retail venture has also earmarked an investment of about Rs 800 crore by 2012 to set up around 1000 stores, covering 400 Indian cities.
A source told ET, “SRL Ranbaxy is in advanced talks with a few PE firms as part of the pre-IPO sale. The company is looking at forging a strategic alliance with Fortis Healthworld, wherein the latter would also divest some of its stake.
There is a possibility that a PE fund may get to pick up stakes in both the companies. Officials of both Fortis Healthworld and SRL Ranbaxy—separate companies of the Fortis Group — were not available for comment.
According to industry sources, the diagnostic and retail chain companies share a lot of synergy being in the same sector. As such, SRL Ranbaxy can leverage its brand value and support its pharmacy retail partner, which is a relatively new model in India.
SRL Ranbaxy is planning to float an IPO to raise around Rs 200-250 crore by the end of the year. It plans to offload around 10-20% stake to PE firms as a pre-IPO sale. The company would use the fund from the issue to add about 35 laboratories across India and scale its network to over 100 laboratories in the next few years. At present, it has 750 collection centres and 40 laboratories.
Fortis Healthworld has so far not finalised its plans on going public. However, the retail venture has also earmarked an investment of about Rs 800 crore by 2012 to set up around 1000 stores, covering 400 Indian cities.
MORNING UPDATES
RPL is starting its Jamnagar refinery in Sept..!!!
Novartis AG has agreed to buy Nestle AG's 77% stake in US company Alcon for $39 billion.
Faced with increasing political pressure, the government will facilitate more cement imports from Pakistan in its efforts to rein in inflation, which has touched a three-year high of 7%.
Securities and Exchange Board of India (Sebi) has reduced the filing fees for documents of public issues, buybacks and draft letter of offer while acquiring a company.
The regulator has made amendments to the Sebi (Merchant Bankers) Regulations, 1992, Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and Sebi (Buyback of Securities) Regulations, 1998.
Sebi has also amended the fees for custodians who will have to pay 0.0005% instead of 0.001%.
Bharat Forge is learnt to have acquired 89% stake in French forgings company Groupe Sifcor .
The board of directors of Spice Mobiles (Q, N,C,F)* at its meeting held on Apr. 07, 2008 recommended a dividend of 15% for the period ended December 31, 2007.
Govt considering excise duty cut on steel, metal index up over 2%.
Novartis AG has agreed to buy Nestle AG's 77% stake in US company Alcon for $39 billion.
Faced with increasing political pressure, the government will facilitate more cement imports from Pakistan in its efforts to rein in inflation, which has touched a three-year high of 7%.
Securities and Exchange Board of India (Sebi) has reduced the filing fees for documents of public issues, buybacks and draft letter of offer while acquiring a company.
The regulator has made amendments to the Sebi (Merchant Bankers) Regulations, 1992, Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and Sebi (Buyback of Securities) Regulations, 1998.
Sebi has also amended the fees for custodians who will have to pay 0.0005% instead of 0.001%.
Bharat Forge is learnt to have acquired 89% stake in French forgings company Groupe Sifcor .
The board of directors of Spice Mobiles (Q, N,C,F)* at its meeting held on Apr. 07, 2008 recommended a dividend of 15% for the period ended December 31, 2007.
Govt considering excise duty cut on steel, metal index up over 2%.
MARKET PREDICTION
GLOBAL MARKETS ARE BIT MIXED TO NEGATIVE AND INDIA WILL FOLLOW THE SAME.
NIFTY ADDS GOOD OI THAT IS 15L CR.
TOTAL MARKET OI IS 54K CR.
PUT CALL RATIO IS 1.22% CRAWL FROM 1.12%.
LEVEL OF NIFTY IS 4630-4720-4800-4850.
BUY FROM 4720 FOR TARGET OF 4820-4830,IF DOES NOT SUSTAIN AT THIS LEVEL GO SHORT WITH SL OF 4850.
SECTOR TO BE WATCH OUT OIL&GAS,FMCG-(COLPAL).
BUT 4700 IS STRICT SL FOR ALL LONG IN THE MARET.
--HAVE A NICE TRADING DAY
-MR.SAM
NIFTY ADDS GOOD OI THAT IS 15L CR.
TOTAL MARKET OI IS 54K CR.
PUT CALL RATIO IS 1.22% CRAWL FROM 1.12%.
LEVEL OF NIFTY IS 4630-4720-4800-4850.
BUY FROM 4720 FOR TARGET OF 4820-4830,IF DOES NOT SUSTAIN AT THIS LEVEL GO SHORT WITH SL OF 4850.
SECTOR TO BE WATCH OUT OIL&GAS,FMCG-(COLPAL).
BUT 4700 IS STRICT SL FOR ALL LONG IN THE MARET.
--HAVE A NICE TRADING DAY
-MR.SAM
Alcoa says energy costs, weak dollar halve profit
Aluminum producer Alcoa Inc (AA.N: Quote, Profile, Research) said on Monday that first-quarter profit was cut in half from a year ago, as higher energy costs and a weak dollar offset a surge in the metal's price.
The results, the first by a Dow component in the quarterly earnings season, missed expectations by 5 cents a share. But Wall Street looked beyond the profit shortfall and currency issues to focus on the rising price of aluminum and the shares recovered after briefly declining in after-hours trading.
"It looks like a pretty solid quarter," said Bruce Zaro, chief technical strategist of Delta Global Advisors in Boston. "Everybody knows the dollar has been weakened and that's one of the most difficult things, especially for the commodity makers, to estimate how that's going to impact the numbers at the end of the quarter."
The price of aluminum on the London Metal Exchange MAL3 slipped below $2,500 per metric ton at the beginning of the year, but has risen since February and gained $17 to $2,970 on Monday.
"I think the fundamentals for aluminum could be quite strong over the next couple of years," said Brian Hicks, co-manager at U.S. Global Investors' resources fund. "That's the way we're looking at it -- we're not so focused on near- term quarterly results. I think the Street might allow for this mishap."
Net earnings were $303 million, or 37 cents per share, compared with $662 million, or 75 cents per share, in the same quarter last year, Alcoa said. Income from continuing operations, excluding restructuring and tax impacts, were $361 million, or 44 cents per share.
That fell below analysts' average expectation of earnings of 49 cents per share, according to Reuters Estimates. Wall Street analysts recently lowered Alcoa estimates, but said they expected the company to benefit from higher aluminum prices later in the year.
Revenue fell to $7.4 billion from $7.9 billion a year earlier, Alcoa said. Analyst expectations were for revenue of $7.388 billion.
Alcoa shares edged higher to $37.90 in after-hours trading after dropping more than 2 percent on the initial earnings report. The shares had fallen $1.56, or 4 percent, to close at $37.44 on the New York Stock Exchange.
The company said earnings were "compressed" by higher raw material and energy costs and by the impact of a weaker U.S. dollar.
"Currency negatively impacted results by $68 million, or 8 cents per share, on a sequential basis, as the U.S. dollar deteriorated against most major currencies," it said.
"I think this is more of an indication that inflation is a bigger problem than people understand," said Peter Schiff, president of Euro Pacific Capital.
"It's driving costs higher, and even companies that you would think would benefit from it are having trouble because the cost pressures are very strong. But, ultimately, you're going to get big increases out of Alcoa in their prices as well."
Alcoa's Chief Executive Officer Alain Belda said in a statement that market fundamentals remain strong and the company is well positioned to boost returns when the North American and European economies rebound.
In an indication that President and Chief Operating Officer Klaus Kleinfeld is Belda's heir apparent, the former Siemens AG (SIEGn.DE: Quote, Profile, Research) CEO took part in Alcoa's earnings conference call. Kleinfeld briefed analysts on his vision for the company and fielded most of their questions.
Kleinfeld has been on Alcoa's board since 2003 and assumed the president/COO position last October. The company has said Kleinfeld is expected to be offered the position of CEO and chairman "upon the retirement of the current chief executive officer." It has not said when Belda, 64, will step down.
Asked on Monday if Alcoa was capable of making higher earnings, Kleinfeld said the company was focused on profitable growth.
"I see a lot of earnings power going forward," he added.
The results, the first by a Dow component in the quarterly earnings season, missed expectations by 5 cents a share. But Wall Street looked beyond the profit shortfall and currency issues to focus on the rising price of aluminum and the shares recovered after briefly declining in after-hours trading.
"It looks like a pretty solid quarter," said Bruce Zaro, chief technical strategist of Delta Global Advisors in Boston. "Everybody knows the dollar has been weakened and that's one of the most difficult things, especially for the commodity makers, to estimate how that's going to impact the numbers at the end of the quarter."
The price of aluminum on the London Metal Exchange MAL3 slipped below $2,500 per metric ton at the beginning of the year, but has risen since February and gained $17 to $2,970 on Monday.
"I think the fundamentals for aluminum could be quite strong over the next couple of years," said Brian Hicks, co-manager at U.S. Global Investors' resources fund. "That's the way we're looking at it -- we're not so focused on near- term quarterly results. I think the Street might allow for this mishap."
Net earnings were $303 million, or 37 cents per share, compared with $662 million, or 75 cents per share, in the same quarter last year, Alcoa said. Income from continuing operations, excluding restructuring and tax impacts, were $361 million, or 44 cents per share.
That fell below analysts' average expectation of earnings of 49 cents per share, according to Reuters Estimates. Wall Street analysts recently lowered Alcoa estimates, but said they expected the company to benefit from higher aluminum prices later in the year.
Revenue fell to $7.4 billion from $7.9 billion a year earlier, Alcoa said. Analyst expectations were for revenue of $7.388 billion.
Alcoa shares edged higher to $37.90 in after-hours trading after dropping more than 2 percent on the initial earnings report. The shares had fallen $1.56, or 4 percent, to close at $37.44 on the New York Stock Exchange.
The company said earnings were "compressed" by higher raw material and energy costs and by the impact of a weaker U.S. dollar.
"Currency negatively impacted results by $68 million, or 8 cents per share, on a sequential basis, as the U.S. dollar deteriorated against most major currencies," it said.
"I think this is more of an indication that inflation is a bigger problem than people understand," said Peter Schiff, president of Euro Pacific Capital.
"It's driving costs higher, and even companies that you would think would benefit from it are having trouble because the cost pressures are very strong. But, ultimately, you're going to get big increases out of Alcoa in their prices as well."
Alcoa's Chief Executive Officer Alain Belda said in a statement that market fundamentals remain strong and the company is well positioned to boost returns when the North American and European economies rebound.
In an indication that President and Chief Operating Officer Klaus Kleinfeld is Belda's heir apparent, the former Siemens AG (SIEGn.DE: Quote, Profile, Research) CEO took part in Alcoa's earnings conference call. Kleinfeld briefed analysts on his vision for the company and fielded most of their questions.
Kleinfeld has been on Alcoa's board since 2003 and assumed the president/COO position last October. The company has said Kleinfeld is expected to be offered the position of CEO and chairman "upon the retirement of the current chief executive officer." It has not said when Belda, 64, will step down.
Asked on Monday if Alcoa was capable of making higher earnings, Kleinfeld said the company was focused on profitable growth.
"I see a lot of earnings power going forward," he added.
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