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Hindalco Industries
Quick Comment: 2QF11
Result - Sub-Par Aluminum
Due to One-off Breakdown
What's new: Hindalco has announced 2QF11 PAT of
Rs.4.34 b. EBITDA was Rs6.4b up 54% YoY, down 20%
QoQ and 17% below our estimates. The miss is mainly
due to higher than anticipated costs largely associated
with freezing at Hirakud smelter. EBITDA margin was
11% vs. 8.5% in 2QF10 and 15.5% in 1QF11
Key highlights of the quarter
• Aluminum production declined 12% YoY and QoQ to
123kt as expected due to pot outage caused by heavy
rains and lightning since early July. Restoration activity
is progressing well and full start-up and stabilization is
expected in early Q4 as per the company. Copper
production at 94 kt was Hindalco’s best ever
performance implying capacity utilization of 75%. This
represented growth of 23% QoQ and 5% YoY.
• Aluminum EBIT margin declined 739 bps sequentially
to 22.2%. Aluminum EBIT stood at Rs.4.2 b declining
23% QoQ (largely due to the break down at Hirakud)
though up 64% YoY. Copper division EBIT grew 4%
sequentially to Rs.1.3 b with EBIT margin at 3.3% vs.
3.7% in 1QF11 and 6.1% in 2QF10
• Manufacturing expenses grew 34% YoY and 29%
QoQ to Rs.7.8 b. Staff costs grew 25% QoQ to Rs.2.8b
due to VRS pay-out and annual wage increment impact.
The company will announce Novelis results tomorrow.
Post earnings conference call: 000 800 100 7106 at 7:30
pm IST on 10th November
Impact on our views: We remain Overweight on
Hindalco since a) The Indian operations will likely be
ascribed better valuations by the market as they come
closer to commissioning of the three large greenfield
projects, and b) Novelis could be rerated further as it
further demonstrates earnings stability.
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