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Hindalco Industries
Quick Comment - 2QF11:
Good Results from Novelis
Impact on our views: We remain OW on Hindalco
since we believe the stock should achieve higher
valuations as the greenfield expansions in India come
closer and volatility of Novelis’ earnings decreases.
What's new: Novelis announced a 2QF11 PAT of
US$62m vs US$50m in 1QF11. Adjusted EBITDA of
US$270m was up 27% QoQ, down 38% YoY and 4%
ahead of our estimates.
Key highlights
Good 2QF11 Performance: Average Realisations
increased 1% QoQ and 9% YoY to US$3425. EBITDA
margin expanded from 8.4% in 1QF11 to 10.7% in
2QF11. The company maintained its EBITDA guidance
of US$1b for F11.
2QF11 shipments disappointed but demand trends
remain strong: Shipments at 737kt were up 6% YoY
but 1% down sequentially and 2% below our estimates.
On YoY basis, shipments were higher by 12% in Europe
and 10% in N. America implying that recovery post the
downturn was on track, but in Asia they were down 6%,
due to the one-off strike in Korea. According to the
company, this should return to normal in the coming
quarters. Management also believes that price
increases taken should more than offset the cost
escalations in coming quarters.
Margin enhancing strategy rolling out: Management
is focusing on enhancing the proportion of high margin
product segments in the portfolio by closing down
inefficient operations. Achieved closure of Bridgenorth
foil plant in 2QF11 would reduce annual operating costs
by US$15m as per the company escalations in coming
quarters.
Capacity Expansion Plans on track: Out of the 600kt
expansion planned, the 220kt Pinda expansion should
be commissioned by Q3CY12 as per the company.
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