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For 3QFY2011, Hindalco’s consolidated net revenue was below our estimates
due to lower-than-expected sales volumes and higher-than-expected costs.
Lower volumes and higher costs: Hindalco’s standalone net revenue grew by
12.0% yoy and 2.0% qoq to `5,918cr due to higher realisation despite lower
sales volumes. During the quarter, a) production at Hirakud continued to be
lower by 4.4% yoy (up 10.1 qoq) to 136kt, b) alumina production fell by 5.8% yoy
and 7.7% qoq to 320kt due to maintenance shutdown and c) the breakdown at
Dahej resulted in lower copper production to 80kt (down 10.0% yoy, 14.7% qoq).
EBITDA remained flat yoy (up 6.0% qoq) to `740cr. EBITDA margin dipped by
164bp yoy to 12.5% and remained flat qoq due to lower TC/RCs and higher
energy cost. Interest expense fell by 29.3% yoy and 2.0% qoq to `52cr, while
other income grew by 22.2% yoy (down 26.2% qoq) to `61cr. Tax rate stood
lower at 20.4%. Thus, net profit grew by 7.8% yoy and 4.1% qoq to `460cr.
Novelis’ bottom line impacted by one-offs: Novelis’ top line grew by 21.2% yoy
(flat qoq) to US $2,560mn, as total shipments increased by 10.0% yoy (down
2.1% qoq) to 767kt. There was an exceptional loss (US $74mn) due to loan
refinancing and restructuring charges (US $20mn) related to closure of
Bridgnorth and Aratu plants, which resulted in net loss of US $46mn.
Outlook and valuation: At the CMP, the stock is trading at 8.5x FY2011E and
7.7x FY2012E EV/EBITDA. We believe Hindalco is well placed to benefit from
a) its aluminium expansion plans (capacity increasing by nearly two-three folds in
the next two-four years), b) low production cost at its new capacities and
c) capacity expansion at Novelis. We maintain Accumulate on the stock with a
revised SOTP Target Price of `243 (earlier `245).
The aluminium division’s revenue grew by 4.9% yoy and 3.5% qoq to `1,977cr.
During the quarter, while alumina production fell by 5.8% yoy and 7.7% qoq to
320kt on account of maintenance shutdown at Renukoot, metal production
continued to remain lower by 4.4% yoy to 136kt, though up 10.1% qoq. However,
production at Hirakud has stabilised in 4QFY2011.
During 3QFY2011, the aluminium division’s EBIT margin remained flat yoy at
23.5%; however, on a sequential basis, it increased from 22.2% in 2QFY2011 due
to higher aluminium prices.
The copper division’s EBIT margin declined from 4.6% in 3QFY2010 to 3.6% in
3QFY2011 due to lower TC/RCs and higher energy cost; however, it increased
from 3.3% in 2QFY2011.
Hindalco (Novelis) – Key result highlights
Novelis’ top line grew by 21.2% yoy and remained flat qoq at US $2,560mn (in
line with our estimate of US $2,494mn), as total shipments increased by 10.0%
yoy (down 2.1% qoq) to 767kt. On a yoy basis, South America, Asia, Europe and
North America reported volume growth of 22.0%, 10.4%, 10.3% and 5.1% yoy,
respectively. On a qoq basis, volumes were lower in North America (down 7.3%)
and Europe (down 7.8%) but grew by 10.4% and 9.9% in Asia and South America,
respectively.
During 3QFY2011, adj. EBITDA grew by 19.6% yoy (down 17.9% qoq) to
US $238mn. There was an exceptional loss of US $74mn due to refinancing of
loan and restructuring charges of US $20mn related to closure of facilities at
Bridgnorth and Aratu. Consequently, net loss during 3QFY2011 was US $46mn as
against profit of US $68mn in 3QFY2010 (net profit came in below our estimate of
US $1mn).
Investment rationale
Aluminium capacity to increase three folds in the next four years
Hindalco aims to increase its aluminium capacity by almost three folds in the next
four years. Part of the Phase-1 at Hirakud has been completed, wherein the
capacity will increase to 161ktpa. Further, in Phase-2, capacity will increase to
213ktpa by 4QFY2012E. Moreover, capacities at Mahan Aluminium and Aditya
Aluminium are expected to come on stream by FY2012. The company has already
committed 90%, 77% and 87% of capex requirements for its Mahan, Aditya and
Utkal projects. Consequently, we expect production and sales volume to record
significant growth over FY2010–14.
Furthermore, these new capacities are coming at the lower end of the cost curve
and will further benefit the company in terms of cost reduction.
Novelis to expand its capacity
Novelis plans to increase its capacity by ~20% by FY2014E. Capacity at its Pinda
operations in Brazil is being increased by ~220kt, while the balance will be
through debottlenecking (a 3–4% increase in capacity every year). Out of the
US $300mn capex planned for Pinda expansion, ~25% and 40% will be incurred
in FY2011 and FY2012, respectively. Capex for debottlenecking would be less
than US $80mn.
Outlook and valuation
At the CMP, the stock is trading at 8.5x FY2011E and 7.7x FY2012E EV/EBITDA.
We believe Hindalco is well placed to benefit from a) its aluminium expansion
plans (capacity increasing by nearly two-three folds in the next two-four years),
b) low production cost at its new capacities and c) capacity expansion at Novelis.
We maintain Accumulate on the stock with a revised SOTP Target Price of `243
(earlier `245).
We have raised our EV/EBITDA multiple for Hindalco standalone from 6.5x to 9.0x
on account of increased visibility of its ongoing expansion projects (which are
expected to come on stream in phases by FY2014). We believe Hindalco’s
(standalone) premium multiple is justified on account of increasing visibility of
expanding aluminium capacity three-fold with a very low cost of production.
Our FY2011 net sales and profitability stand lower on account of lower-thanexpected
3QFY2011 results. Also, for FY2012, we have revised our price estimates
upwards, whereas we have lowered our aluminium sales volume estimates.
Furthermore, we have lowered our profitability estimates for Hindalco standalone
as we now expect higher input costs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindalco – 3QFY2011 Result Update
Angel Broking maintains an Accumulate on Hindalco with a Target Price of Rs. 243.
For 3QFY2011, Hindalco’s consolidated net revenue was below our estimates
due to lower-than-expected sales volumes and higher-than-expected costs.
Lower volumes and higher costs: Hindalco’s standalone net revenue grew by
12.0% yoy and 2.0% qoq to `5,918cr due to higher realisation despite lower
sales volumes. During the quarter, a) production at Hirakud continued to be
lower by 4.4% yoy (up 10.1 qoq) to 136kt, b) alumina production fell by 5.8% yoy
and 7.7% qoq to 320kt due to maintenance shutdown and c) the breakdown at
Dahej resulted in lower copper production to 80kt (down 10.0% yoy, 14.7% qoq).
EBITDA remained flat yoy (up 6.0% qoq) to `740cr. EBITDA margin dipped by
164bp yoy to 12.5% and remained flat qoq due to lower TC/RCs and higher
energy cost. Interest expense fell by 29.3% yoy and 2.0% qoq to `52cr, while
other income grew by 22.2% yoy (down 26.2% qoq) to `61cr. Tax rate stood
lower at 20.4%. Thus, net profit grew by 7.8% yoy and 4.1% qoq to `460cr.
Novelis’ bottom line impacted by one-offs: Novelis’ top line grew by 21.2% yoy
(flat qoq) to US $2,560mn, as total shipments increased by 10.0% yoy (down
2.1% qoq) to 767kt. There was an exceptional loss (US $74mn) due to loan
refinancing and restructuring charges (US $20mn) related to closure of
Bridgnorth and Aratu plants, which resulted in net loss of US $46mn.
Outlook and valuation: At the CMP, the stock is trading at 8.5x FY2011E and
7.7x FY2012E EV/EBITDA. We believe Hindalco is well placed to benefit from
a) its aluminium expansion plans (capacity increasing by nearly two-three folds in
the next two-four years), b) low production cost at its new capacities and
c) capacity expansion at Novelis. We maintain Accumulate on the stock with a
revised SOTP Target Price of `243 (earlier `245).
Hindalco (Standalone) – Key result highlights
Hindalco’s standalone net revenue grew by 12.0% yoy and 2.0% qoq to `5,918cr
due to higher realisation despite lower sales volumes (below our estimate of
`6,561cr due to lower-than-expected sales volume).
EBITDA was flat yoy (up 6.0% qoq) to `740cr. EBITDA margin dipped by 164bp
yoy to 12.5% and remained flat qoq due to higher raw-material and energy costs
and lower TC/RCs. Interest expense fell by 29.3% yoy and 2.0% qoq to `52cr,
while other income grew by 22.2% yoy (down 26.2% qoq) to `61cr. Tax rate stood
lower at 20.4% in 3QFY2011 as against 23.3% in 3QFY2010 and 22.0% in
2QFY2010. Thus, net profit grew by 7.8% yoy and 4.1% qoq to `460cr (below our
estimate due to higher-than-expected costs).
Segmental performance
During 3QFY2011, the company’s copper division reported revenue of `4,000cr,
up 16.5% yoy and 1.2% qoq. Cathode production during the quarter declined by
10.0% yoy and 14.7% qoq to 80kt due to breakdown of cooling tower at Dahej
and production of CC rods fell by 18.1% yoy and 37.6% qoq to 27kt. The
company has completed the repair of the cooling tower problem at Dahej and
normal production has resumed in 4QFY2011.
The aluminium division’s revenue grew by 4.9% yoy and 3.5% qoq to `1,977cr.
During the quarter, while alumina production fell by 5.8% yoy and 7.7% qoq to
320kt on account of maintenance shutdown at Renukoot, metal production
continued to remain lower by 4.4% yoy to 136kt, though up 10.1% qoq. However,
production at Hirakud has stabilised in 4QFY2011.
During 3QFY2011, the aluminium division’s EBIT margin remained flat yoy at
23.5%; however, on a sequential basis, it increased from 22.2% in 2QFY2011 due
to higher aluminium prices.
The copper division’s EBIT margin declined from 4.6% in 3QFY2010 to 3.6% in
3QFY2011 due to lower TC/RCs and higher energy cost; however, it increased
from 3.3% in 2QFY2011.
Hindalco (Novelis) – Key result highlights
Novelis’ top line grew by 21.2% yoy and remained flat qoq at US $2,560mn (in
line with our estimate of US $2,494mn), as total shipments increased by 10.0%
yoy (down 2.1% qoq) to 767kt. On a yoy basis, South America, Asia, Europe and
North America reported volume growth of 22.0%, 10.4%, 10.3% and 5.1% yoy,
respectively. On a qoq basis, volumes were lower in North America (down 7.3%)
and Europe (down 7.8%) but grew by 10.4% and 9.9% in Asia and South America,
respectively.
During 3QFY2011, adj. EBITDA grew by 19.6% yoy (down 17.9% qoq) to
US $238mn. There was an exceptional loss of US $74mn due to refinancing of
loan and restructuring charges of US $20mn related to closure of facilities at
Bridgnorth and Aratu. Consequently, net loss during 3QFY2011 was US $46mn as
against profit of US $68mn in 3QFY2010 (net profit came in below our estimate of
US $1mn).
Investment rationale
Aluminium capacity to increase three folds in the next four years
Hindalco aims to increase its aluminium capacity by almost three folds in the next
four years. Part of the Phase-1 at Hirakud has been completed, wherein the
capacity will increase to 161ktpa. Further, in Phase-2, capacity will increase to
213ktpa by 4QFY2012E. Moreover, capacities at Mahan Aluminium and Aditya
Aluminium are expected to come on stream by FY2012. The company has already
committed 90%, 77% and 87% of capex requirements for its Mahan, Aditya and
Utkal projects. Consequently, we expect production and sales volume to record
significant growth over FY2010–14.
Furthermore, these new capacities are coming at the lower end of the cost curve
and will further benefit the company in terms of cost reduction.
Novelis to expand its capacity
Novelis plans to increase its capacity by ~20% by FY2014E. Capacity at its Pinda
operations in Brazil is being increased by ~220kt, while the balance will be
through debottlenecking (a 3–4% increase in capacity every year). Out of the
US $300mn capex planned for Pinda expansion, ~25% and 40% will be incurred
in FY2011 and FY2012, respectively. Capex for debottlenecking would be less
than US $80mn.
Outlook and valuation
At the CMP, the stock is trading at 8.5x FY2011E and 7.7x FY2012E EV/EBITDA.
We believe Hindalco is well placed to benefit from a) its aluminium expansion
plans (capacity increasing by nearly two-three folds in the next two-four years),
b) low production cost at its new capacities and c) capacity expansion at Novelis.
We maintain Accumulate on the stock with a revised SOTP Target Price of `243
(earlier `245).
We have raised our EV/EBITDA multiple for Hindalco standalone from 6.5x to 9.0x
on account of increased visibility of its ongoing expansion projects (which are
expected to come on stream in phases by FY2014). We believe Hindalco’s
(standalone) premium multiple is justified on account of increasing visibility of
expanding aluminium capacity three-fold with a very low cost of production.
Our FY2011 net sales and profitability stand lower on account of lower-thanexpected
3QFY2011 results. Also, for FY2012, we have revised our price estimates
upwards, whereas we have lowered our aluminium sales volume estimates.
Furthermore, we have lowered our profitability estimates for Hindalco standalone
as we now expect higher input costs.
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