MUMBAI (Commodity Online): At a time when the Bombay Stock Exchange Index showed major gains in 2009 with an 80 per cent return, several investors thought of coming back to the equity sector which they had left following the 2008 early 2009 setbacks.

But, now also one factor which many investors are not seriously considering is the metal companies, which were ruthlessly mauled in the bear run witnessed in 2008 and in the initial period of 2009.

But, things have changed drastically for metals companies now. According to media reports and results of several firms involved in meta production, these companies have shown excellent performance in the 3rd quarter of the financial year.

Most metal companies are likely to post a growth of 20-50% in topline. The bottomline is likely to grow at a faster clip.

Indian steel companies have witnessed strong volume growth following the stimulus package from the government and given the fact that the economic slowdown was not as severe as it was in the West, reports The Economic Times newspaper. The top three steel makers reported growth in sales volume in the range of 20-60% in December 2009 quarter. Tata Steel's sales volume in the December 2009 quarter is up slightly less than half compared to same period last year. The same figure could be around 60% in the case of JSW Steel.

While the demand, at least for large primary steel producers, continues to remain robust, prices started moving upwards only in the latter half of December quarter. Most of the steel companies raised prices in the range of Rs 1,000-2,000 per tonne in December. Hence, most of the topline growth in December quarter is likely to come mainly from volume growth.

The growth in bottomline, however, will hinge mainly on the extent of backward raw material integration and volume growth. Those companies with fewer captive mines are expected to see a sharp jump in operating profit margin.

However, after the renewal of the contract in the beginning of FY10, the raw material cost almost halved, mainly due to the meltdown in the commodity market. Hence, raw material expenses are going to be significantly lower this time. As a result, the operating margins of non-integrated players such as Steel Authority of India (SAIL) and JSW Steel are likely to expand by around 700-1000 basis points.

The only factor which will affect the steel firms and iron ore producers in India is the Railways move to hike freight charges which may affect the firms' exports.

Most of these firms export iron ore to China, which is showing a huge demand growth nowadays. India's Railway Ministry is planning to hike freight charges for bulk goods like steel and iron ore in the coming budget which will be presented in Parliament in February.

India Bombay Stock Exchange Tata steel