Bloomberg News

NLMK Is Most Profitable Major Steelmaker After Cost Cuts

August 07, 2014

OAO Novolipetsk Steel (NLMK) regained its ranking as the world’s most profitable major steelmaker after the biggest Russian producer by domestic output cut costs.

NLMK, as it’s known, said today earnings before interest, taxes, depreciation and amortization jumped 27 percent in the second quarter from the previous three months to $594 million. Ebitda margin rose to 21.2 percent from 17.7 percent, the highest level among NLMK’s 24 largest peers, according to data compiled by Bloomberg. The group’s average was 9.9 percent.

Russian steelmakers have “strong earnings momentum” on a weak ruble, local demand and shrinking import pressure, Deutsche Bank AG analyst George Buzhenitsa said in a report last week.

Russia’s OAO Severstal (SVST), after last week posting a margin of 18.6 percent for the second quarter, had had the highest Ebitda margin among the top 25 before NLMK reported its own results.

NLMK attributed its wider margin to efficiency programs, improvements in the market and the structure of sales.

The company, which isn’t self-sufficient in coal, was also helped by low prices for the raw material, relative to Severstal with its own coal assets, Dmitry Kolomytsyn, a Morgan Stanley analyst, said today by phone. “We expect Severstal to catch up with NLMK in terms of Ebitda margin this quarter,” he said.

NLMK, based in Lipetsk, rose 0.6 percent today to 46.89 rubles by 1:11 p.m. in Moscow trading, while Severstal gained 1.1 percent to 331.9 rubles. The companies vie with each other for the status of largest Russian steelmaker by market value, with NLMK currently on top with 281 billion rubles ($7.76 billion), compared with Severstal’s 278 billion rubles.

Morgan Stanley (MS:US) prefers Severstal because of its dividend payments after the company sold its North American assets.

NLMK’s net income in the second quarter fell 9 percent to $158 million, while revenue slid 6 percent to $2.81 billion. It sees financial performance this quarter “in line with or marginally better” than the last, it said in a statement.

To contact the reporter on this story: Yuliya Fedorinova in Moscow at yfedorinova@bloomberg.net

To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net Tony Barrett, Ana Monteiro


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