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Coal cost negatively impacts profitability
Alumina volumes lead topline recovery
2QFY11 topline was Rs14,792mn, a 13% sequential growth and 2% ahead of
our estimates. Alumina sales volume rebounded to a healthy 226kt from last
quarter’s dip (38% YoY, 126% QoQ) , while Aluminium metal sales volume
remained steady at 109kt (3% YoY, 0% QoQ).
Power and fuel costs increase on account of seasonality
EBITDA at Rs3,477mn was significantly below our estimate of Rs4,209mn,
primarily on account of higher power and fuel costs, which surged 34% QoQ
despite aluminium sales being stagnant. Power and fuel costs per tonne of
metal sales rose to Rs45,313/t (up 37% QoQ but down 4% YoY). Costs were
higher on account of purchasing power as well as higher volumes of washed
coal and imported coal. These are expected to decrease in 3Q, and further
decrease in 4Q.
Segment margins — aluminium makes losses
Aluminium EBIT margin slipped again into the red on account of higher
electricity costs – the margin in 2Q was a negative 13.0% compared with
17.6% in 1QFY11.
Expansion sees a slight delay
The alumina refinery expansion (to 2.1mtpa from 1.6mtpa) is expected to be
delayed by a couple of months from the scheduled date of January 2011.
View: Maintain HOLD with TP of Rs445
While we will update our FY11E and FY12E estimates post the conference call
on November 2, 2010, we are likely to maintain our HOLD recommendation
on the stock. The stock trades at rich multiples, but could be a key beneficiary
of the industry trend of alumina prices being delinked from aluminium metal
prices.
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