PREVIEW-Top India steel firms Q1 seen up, Hindalco to fall

* What: India's top metal firms' fiscal Q1 earnings

* When: SAIL July 21, Hindalco July 28, Tata Steel July 31

* Tata Steel and SAIL profits to rise, Hindalco's to fall

By Devidutta Tripathy

NEW DELHI, July 18 (Reuters) - India's leading steel
makers, Tata Steel (TISC.BO: Quote, Profile, Research) and SAIL (SAIL.BO: Quote, Profile, Research), are set to
report higher quarterly profits after riding strong demand and
firmer prices, but they face pressure from a government
battling inflation.

Since May, the companies have had a self-imposed
three-month moratorium on prices, while costs of key raw
materials such as iron ore and coal have been rising.

Global steel producers have raised prices by about half in
the first six months of 2008, while prices in India have risen
by only about 21 percent.

Tata Steel, whose Europe-based Corus unit contributes the
bulk of its 28 million tonne annual capacity, should outperform
as it is able to raise prices overseas to compensate for higher
input costs.

"Tata Steel is the best bet as they get half of their
revenue from Corus and international prices will continue to
rise," said Niraj Shah, a senior analyst at Centrum Broking.

Top aluminium maker Hindalco Industries Ltd (HALC.BO: Quote, Profile, Research) is
expected to post a 6.5 percent drop in quarterly profit,
according to a Reuters poll of anlaysts. The fall is due to
power and fuel costs growing faster than the firm raised metal
prices, while falling refining margins in copper also weighed.

Steel and aluminium use in sectors such as construction and
automobiles is expected to keep the annual demand growth at
more than 10 percent for the next four to five years, analysts
say.

B. Muthuraman, managing director of Tata Steel, said this
week steel prices in India were 15,000-20,000 rupees per tonne
below global rates, and there was justification for increasing
prices.

However, the government continues to put pressure on the
companies to hold prices, with annual inflation edging close to
12 percent, the highest in more than 13 years.

"Steel companies will report good growth (in June quarter)
as prices were about 25-30 percent higher than the year-ago
quarter," Centrum's Shah said.

"But now I am going with a scenario where prices in India
will remain where they are, at least for sometime. Margin
pressure will increase going forward, no doubt about it."

Tata Steel's net profit from its Indian operations are
forecast to rise 5 percent to 12.82 billion rupees ($300
million) in the fiscal first quarter ended June.

Analysts said the rise was expected to be modest because in
the year earlier period it had the benefit of an exceptional
foreign exchange gain of 5.53 billion rupees.

Consolidated earnings, including Corus, are seen at 22.18
billion rupees on sales of 389.65 billion, based on the average
of three brokerage forecasts.

(See bottom of the story for company valuation, share price
movement and a table of forecasts)

State-run Steel Authority of India, or SAIL, is expected to
report its net profit rose 37.3 percent to 20.94 billion
rupees, on higher margins and lower coking coal costs,
according to a survey of 11 analysts.

But a new contract for coking coal, which will triple
costs, takes effect in the September quarter and will weigh on
earnings.

Both Tata Steel and SAIL run their plants in India using
iron ore from their own mines and are relatively insulated from
a near doubling in ore prices agreed by Chinese and Japanese
rivals.

But including Corus, Tata Steel has access to only a fifth
of iron ore requirements from own fields, Citigroup said.

Hindalco should report a 6.5 percent decline in quarterly
profit to 5.64 billion rupees, as cost increases eroded margin
even as prices of aluminium were about 7 percent higher during
the quarter and copper was up about 11 percent.
SHARE PRICE & P/E OF TOP METAL FIRMS
---------------------------------------------------------------
- COMPANY Share performance P/E Market
cap (pct change in June quarter) (forecast) (July
16)
---------------------------------------------------------------
- Tata Steel* 5.1 5.7 $10.6
bln
SAIL -24.5 6.5 $12.2 bln
Hindalco* -13.7 9.4 $3.9 bln
---------------------------------------------------------------
- * P/E in terms of standalone earnings

Following are forecasts in billion rupees for the firms
from a Reuters poll. Tata Steel standalone on eight forecasts,
SAIL on 11 and Hindalco on nine.
NET PROFIT
--------------------------------------------------------------
COMPANY Mean (% yr) Range Date
--------------------------------------------------------------
Tata Steel# 12.82 4.9 10.90-16.63 July 31
SAIL 20.94 37.3 15.45-28.31 July
21
Hindalco@ 5.64 -6.5 4.10-6.89 July
28
REVENUE
--------------------------------------------------------------
Tata Steel# 55.07 31.2 51.30-59.64
SAIL 101.69 26.5 98.55-106.00
Hindalco@ 52.39 12.0 43.35-58.47
--------------------------------------------------------------
# Tata Steel forecasts are for its Indian operations, do not
include Corus or other assets. Hindalco figures are also
standalone, do not include Novelis, which it acquired last
year.

NOTE: Estimates compiled from: Angel Broking, Motilal
Oswal, CLSA, Centrum, Morgan Stanley, Batlivala & Karani, SSKI,
India Infoline, Religare, Macquarie and Merrill Lynch.
($1=42.8 rupees)
(Editing by Ranjit Gangadharan and Lincoln Feast)