Examining the performance of Iran Stock Exchange Industries during the period of March 2015 –March 2016

Posted on Posted in Business Guidelines

In examining the performance of industries within the capital market during the mentioned period it should be noted that more than 55% of the value of Tehran Securities and Exchange Market consists of the following eight industries: chemical, base metals, petroleum products, supply of electricity and gas, automobiles and auto parts, pharmaceuticals, extraction of metal ores, and cement. Most of these industries are among the major and infrastructural industries of the country and the study of their condition during 1394(Persian Year March2015-March 2016) will provide sufficient insight about the situation of Iran’s industries.

The Chemical Group:

This group is the most important sector in the capital market industries which, alone, is comprised of 24% of the market. Main companies in this sector are petrochemical companies and their primary products are Methanol, Ethanol, Urea, Ammonia, Ethylene, Propylene and their derivatives. In examining the companies within the chemical group we should bear in mind that the drop in the price of oil during last year as well as slight volatilities in the exchange rate for Dollar resulted in low profitability for these companies and in contrast to the previous years they even had difficulty attaining their predicted profit. Most important companies that have encountered difficulties in this regard were producers of Methanol and Urea. A major part of Methanol and Urea produced domestically is exported to countries like India, China, and neighboring European countries. Considering that in China Urea is produced from coal, therefore its final price is lower than Urea that is produced in Iran and many of the Urea producing companies in Iran have been forced to reduce their prices and offer discounts in order to keep their share in international markets, and this has led to a reduction in the sales of Urea producing companies. On the other hand, considering that Methanol is also used as a fuel, the drop in prices of oil and petrol has resulted in a reduction in the demand for methanol in international markets and domestic producers of methanol such as Petrochemicals of Zagros, Khark, Shiraz and Fan-Avaran have faced a sharp drop in their sale prices, although have been able to keep their sales amount.

Base Metals Group:

Main products of companies for base metals in the exchange market are those of steel and copper. This is because the production volumes of lead, zinc and aluminum within Tehran stock exchange companies are small and some of them even tend to produce in workshops as a result of international production conditions. In the steel producing group major productions are related to steel sections, bullions (bars), sponge iron, roller, and round bars with production data shown below.

In this group, despite the reduction in economic growth rate of China and also a decline in domestic demand, the demand situation is not very convenient domestically and abroad, and also the existence of import tariffs has kept any hope for this industry alive. The most important problem that faces the steel industry is the old technology in Iran compared to international standards and its high dependence on energy, as well as unsuitable structure of human force and the absorption of excess work force during the favorable periods for main metals, and therefore almost half of production costs of steel in Iran are related to overhead costs of production and wages as a result. This, along with stagnant global markets for steel has led to a sharp decline in profit margins for production of steel products from 32% in 1392 to 7% in 1394. Non-economic nature of 800 thousand tons steel producing units as well as unsuitable production structure in large steel companies have been the main factors behind the loss faced by some of the producers especially producers of construction products, workers protests and non-payment of pension claims of the retirees of this industry.

Other important companies in this industry are producers of copper with the National Iranian Copper Industries Company as the most prominent of all. Almost half of the production of this industry is directly exported and another part is indirectly reached by foreign consumers, mostly producers of electronic devices. Considering the drop in the international price for this product and the decline in domestic demand and lack of consumption capacity for the products of this industry, companies started to reduce part of their capacities since 1391. However, as a result of agreements achieved in the Comprehensive Plan of Action, the sales of these companies have an increasing trend shown in the table below, yet a large gap still exists between production and sale and so companies are only able to sell 25% of their products. The majority of copper products that are produced in Iran are in crude forms and the exports of this metal is also accepted in crude form, which has led to a reduction in the profit margin of sale during recession period. Moreover, during periods of boom for copper, companies active in this industry started to absorb excess manpower which in turn increased a major part of fixed costs of production related to manpower and therefore reduced competitiveness of this industry. As a result of this trend, net profit margin of companies declined from 30% in 1392 to 13% in 2015.

Refinery Group:

This group is primarily comprised of refining companies with oil refining of Bandar-Abbas, Tehran, Isfahan, Shiraz and Tabriz as their most important companies. The main problems of this group also stems from the reduction in global oil prices as well as differences in the accounts of refinery companies and the National Iranian Oil Refining and Distribution Company. Lack of transparency in invoices and the disparities between annual accounts of refining companies and the National Iranian Oil Refining and Distribution Company, have influenced the income of refining companies. Considering that the purchaser of products and the seller of crude oil to refineries is the National Iranian Oil Refining and Distribution Company, therefore the profit of refining companies is very much influenced by the invoice that is sent to them at the end of the year by the distributing company. Bearing in mind the country’s need for refined products like gasoline, sales volume of refineries has not changed much, however the drop in oil prices has reduced the turnover of refineries and as a result the 4% profit margins of refining companies has been turned into loss.

The Group for the Supply of Electricity, Steam and Hot Water

In this group two utility supplier companies namely Mobin and Fajr for petrochemical companies and also two power stations named Asaluyeh and Damavand are active. In this group, as shown in the table below, considering the need for electricity in the country and utility in petrochemical companies, the companies in this group did not face any problems in sales. However, there are two methods for analyzing the income in this sector. In utility providing companies sales income are received in cash and the quality of their profitability regarding cash flow is very attractive. But in the case of power supply companies, considering that they sell their electricity to Tavanir Company(National Dispatching Company), they face some difficulty receiving their financial claims and as a result the quality of their profitability is much lower.

Automobile Industry:

In this group both automobile producing companies and producers of parts have agreed that they need to be examined by different methods. Two major automobile producers in this group, namely Irankhodro and Saipa experienced a reduction in their sales quantities in 1394, and considering the automobile industry is in a recession mode, they also faced a decline in their sales earnings. In the group of automobile producers there is also another sector such as producers of commercial automobiles which experienced a better scenario regarding sales quantity and in this sector the sale of trucks, pickup trucks and other commercial cars have slightly increased. On the other hand, in this group producers of automobile parts did not experience a convenient situation; the reduction in the sales of automobile producers and nonpayment of the claims of this group led to a reduction in their sales and also a halt in their operations. This is while value of the companies’ stock of this group has been different in the last three months of 1394 and all the members of the automobile group have also experienced growth in the value of their stock ftom 30% to 150%. This growth originated from the positive news regarding the automobile producing group to international companies in two sections, first the production of new automobiles and partnership in manufacturing, production and the transfer of technical knowhow, and the other financing using the ability of international automakers to attain less expensive foreign resources. However, in a general assessment we may be able to say that automakers -except producers of commercial automobiles- did not experience a very desirable year regarding sales and the hope of a more positive future is the only price stimulus in the capital market.

Pharmaceutical Group:

In this industry the situation is very different from other industries in the stock exchange. Considering society’s need for medication there are numerous support systems in this industry and the ability to sell and to cover the budget regarding the domestic demand and the possibility of importing primary materials and technology, this group showed a rather suitable performance during 1394. The most important problem that pharmaceutical companies were facing in 1394 was that they did not receive their claims for sale of medications to government owned hospitals and pharmacies in the framework of the Health transformation Plan.

The Group for Extraction of Metal Ores:

Iron ore producing companies are the most important companies in the mines group which offer most of their products for domestic steel producing companies and export a limited part of their products abroad. Considering the recession in the steel industry as well as the drop in the price of steel in domestic and foreign markets, the price of iron ore and tuffs produced by these companies have also declined and 62% iron ore of these companies dropped from 63 dollars per ton to lower than 50 dollars (it even reached the level of 38 dollars in the specific period of time). Some of the problems in this industry are related to the unsuitable structure for the final price and financial costs that are created in the booming period and presently the price of iron ore is not very attractive, therefore has created problems regarding the profitability of these companies.

The Cement Group:

Excess supply and the non-tradable nature of cement have resulted in an unsuitable performance by this industry during 1394. Presently, nominal exploitable capacity volume of this industry is approximately 90 million tons annually, while domestic demand capacity according to historic data has not been more than 50 million tons. Considering excess supply, producing companies have reduced their capacities to levels close to 70 million tons. Moreover, non-economic nature of exports and tariffs on cement import in Iraq has intensified competition in the domestic market and thus in order to keep their level of production they have offered discounts in sales.

FAR law firm

Leave a Reply

Your email address will not be published. Required fields are marked *