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Hindalco------------------------------------------------------------------------- Maintain OUTPERFORM
Consensus miss was more driven by lower prices than higher costs
● Hindalco results were in line with our estimates (Fig 2) but missed
consensus by 15%. Our analysis suggests that the miss was more
driven by lower price than higher costs, which were flat
sequentially (Fig 1). In a rising LME, there is a lag between LME
and the price increase taken by the company; hence, the miss.
● 3Q11 included one-off costs of Rs1 bn for Hirakud and Dahej
outages. Adjusted for these, primary Al cost for Hindalco has now
increased to around US$1550/t from US$1400/t last year.
● Copper EBIT increased 11% sequentially and surprised positively
due to higher acid realisation, which flows directly to EBIT. This
more than offset the two-week shutdown at Dahej.
● Hindalco spent Rs45 bn on expansion projects in 9M FY11. We
are positively surprised with Oct-11 timelines for Mahan, while
Utkal delay to 4Q FY12 was expected. As Utkal would feed
alumina to Mahan, we expect both to start commercially in FY13.
● All approvals for Aditya are in place now (including reforestation
land), so the project should pick up pace. The timelines have been
extended by 15 months and are in line with expectations.
Did HNDL miss consensus due to high cost or low price?
Hindalco results were in line with our estimates (Figure 2), but they
missed consensus by 15%. Our analysis reveals that the impact of
sequential reduction in premium over LME was more than that of the
increase in cost, which caused the miss in consensus estimates
(Figure 1). Nalco is the price setter in the domestic market, and there
is always a lag between LME prices and the price changes
implemented by Nalco. Moreover, the product mix was inferior in
3Q11 due to lower sales of rolled products and extrusions.
Hindalco had mentioned in 2Q11 results that one-off costs related to
stabilisation of Hirakud smelters would continue in 3Q11. Additionally,
CP coke prices have impacted cost by US$60/t QoQ. However, if we
analyse the segment cost, we note that sequentially cost/t is almost
same as the reduction in power and personnel cost absorbed increase
in raw material and one-off cost.
Primary Al cost for Hindalco increased to US$1550-1600/t
3Q11 was impacted by one-time cost of Rs1 bn due to Hirakud and
Dahej outages. If we adjust back the proportional cost for aluminium,
the production cost of primary Aluminium for Hindalco would be about
US$1550-1600/t. The corresponding cost last year was $1400/t.
Copper exceeded expectations due to high acid realisation
Despite the two-week shutdown at the copper smelter and the lower
copper volumes (consequently), copper EBIT increased 11%
sequentially on higher sulphuric acid realisation.
Revised timelines for expansions are better than expected
Hindalco has spent about Rs45 bn on expansion projects in 9M FY11
(Utkal capex is not reflected in standalone capital employed). Majority
of the capex has been spent on Mahan. In terms of revised timelines,
we are positively surprised by Oct-11 commissioning of Mahan project,
while Utkal delay to 4Q FY12 is in line with expectation.
● Mahan smelter: Hindalco remains hopeful of forest clearance of
the Mahan coal block. In the interim, it has applied for tapering
linkage from the ministry of coal. The financial closure is expected
soon and the bankers have already been mandated. Although
Mahan smelter is slated to start before the refinery, the
commercial operations of both should start together as alumina
from Utkal refinery is going to feed the Mahan smelter.
● Aditya smelter has been delayed till now due to a delay in forest
clearance for the reforestation land. However, the company’s
press release mentions now that all approvals are in place. The
timelines have been extended by almost 15 months.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindalco------------------------------------------------------------------------- Maintain OUTPERFORM
Consensus miss was more driven by lower prices than higher costs
● Hindalco results were in line with our estimates (Fig 2) but missed
consensus by 15%. Our analysis suggests that the miss was more
driven by lower price than higher costs, which were flat
sequentially (Fig 1). In a rising LME, there is a lag between LME
and the price increase taken by the company; hence, the miss.
● 3Q11 included one-off costs of Rs1 bn for Hirakud and Dahej
outages. Adjusted for these, primary Al cost for Hindalco has now
increased to around US$1550/t from US$1400/t last year.
● Copper EBIT increased 11% sequentially and surprised positively
due to higher acid realisation, which flows directly to EBIT. This
more than offset the two-week shutdown at Dahej.
● Hindalco spent Rs45 bn on expansion projects in 9M FY11. We
are positively surprised with Oct-11 timelines for Mahan, while
Utkal delay to 4Q FY12 was expected. As Utkal would feed
alumina to Mahan, we expect both to start commercially in FY13.
● All approvals for Aditya are in place now (including reforestation
land), so the project should pick up pace. The timelines have been
extended by 15 months and are in line with expectations.
Did HNDL miss consensus due to high cost or low price?
Hindalco results were in line with our estimates (Figure 2), but they
missed consensus by 15%. Our analysis reveals that the impact of
sequential reduction in premium over LME was more than that of the
increase in cost, which caused the miss in consensus estimates
(Figure 1). Nalco is the price setter in the domestic market, and there
is always a lag between LME prices and the price changes
implemented by Nalco. Moreover, the product mix was inferior in
3Q11 due to lower sales of rolled products and extrusions.
Hindalco had mentioned in 2Q11 results that one-off costs related to
stabilisation of Hirakud smelters would continue in 3Q11. Additionally,
CP coke prices have impacted cost by US$60/t QoQ. However, if we
analyse the segment cost, we note that sequentially cost/t is almost
same as the reduction in power and personnel cost absorbed increase
in raw material and one-off cost.
Primary Al cost for Hindalco increased to US$1550-1600/t
3Q11 was impacted by one-time cost of Rs1 bn due to Hirakud and
Dahej outages. If we adjust back the proportional cost for aluminium,
the production cost of primary Aluminium for Hindalco would be about
US$1550-1600/t. The corresponding cost last year was $1400/t.
Copper exceeded expectations due to high acid realisation
Despite the two-week shutdown at the copper smelter and the lower
copper volumes (consequently), copper EBIT increased 11%
sequentially on higher sulphuric acid realisation.
Revised timelines for expansions are better than expected
Hindalco has spent about Rs45 bn on expansion projects in 9M FY11
(Utkal capex is not reflected in standalone capital employed). Majority
of the capex has been spent on Mahan. In terms of revised timelines,
we are positively surprised by Oct-11 commissioning of Mahan project,
while Utkal delay to 4Q FY12 is in line with expectation.
● Mahan smelter: Hindalco remains hopeful of forest clearance of
the Mahan coal block. In the interim, it has applied for tapering
linkage from the ministry of coal. The financial closure is expected
soon and the bankers have already been mandated. Although
Mahan smelter is slated to start before the refinery, the
commercial operations of both should start together as alumina
from Utkal refinery is going to feed the Mahan smelter.
● Aditya smelter has been delayed till now due to a delay in forest
clearance for the reforestation land. However, the company’s
press release mentions now that all approvals are in place. The
timelines have been extended by almost 15 months.
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