Preferred plays

The Indian metals and mining segment has a relatively higher degree of concentration than several other large economies. Developing mines and enduring harsh pricing and cost conditions calls for a certain scale which has been attained by very few Indian companies.

The iron ore segment has two major listed producers: NMDC and Sesa Goa. Both enjoy post-tax margins of 45-60 per cent.

However, NMDC has much larger and higher-grade reserves than Sesa Goa and also enjoys higher margins as a result of better realisations and lower conversion costs.

Other companies that hold significant reserves include SAIL and Tata Steel. The captive steel producers enjoy relatively lower returns on equity and operating margins compared to miners.

Steel production also utilises other inputs — manganese, chromium, among others. Recently listed MOIL is one of India's largest manganese producers, accounting for slightly less than 50 per cent of the domestic market. The company holds multiple mines with high grade reserves and enjoys after-tax margins of around 50 per cent. Tata Steel holds sizable reserves of iron ore, chromite and manganese, which partly account for the stellar margins and returns on equity from the company's Indian operations.

In the aluminium segment, NALCO owns bauxite mines and has the refineries and smelters to process the ore into alumina (intermediate) and aluminium metal. Hindalco's Indian operations also have captive bauxite and coal mines, as do Sterlite-owned MALCO and BALCO.

Hindustan Zinc, which controls 80 per cent of the domestic zinc market, is also a wholly integrated zinc producer. While the acquisition of Anglo American's zinc assets are likely to prove a drag on the company's 50 per cent after-tax margins, the outlook for the company is buoyant, thanks to the rapidly growing coated-steel segment.

India has very few viable mines for copper ore and Indian companies such as Hindalco and Sterlite import ore to process into copper cathodes.

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