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EARNINGS REVIEW
Hindalco Industries (HALC.BO)
Neutral Equity Research
Below expectations on lower volumes and higher input costs
What surprised us
Hindalco reported 3QFY11 stand-alone net income of Rs4.6 bn (up 8% yoy
and 6% qoq), which is 9% below our and 13% below Reuters’ consensus
expectations. EBITDA came in at Rs7.4 bn, which is 8% below our
estimates – on account of lower sales volumes in both aluminium and
copper and higher cost pressures. Key highlights: Aluminium: Despite
better geographic mix and higher realisations, revenue growth was only
5% yoy on account of lower volumes in both alumina (maintenance
shutdown at Renukoot) and aluminium (9kt production loss due to Hirakud
power outage). EBIT margins were maintained at 23% despite higher
energy costs. Copper: Copper volumes were impacted by a cooling tower
outage at Dahej (10 kt production loss). Despite better by-product
realisations, EBIT margins compressed 100 bp yoy (to 3.6%) due to lower
Tc-Rc rates, appreciating rupee and higher energy costs. There are some
delays to the ongoing expansion projects – the company now expects
Mahan smelter by Oct 2011 and Utkal refinery in early 2012.
What to do with the stock
We cut our FY11E-13E EPS estimates by 7%-16% to factor in lower
volumes, delayed expansions and higher costs. We maintain our Neutral
rating and 12-m P/B based TP of Rs207 (reflecting limited change to our
consolidated BV per share). At current valuations – FY12E P/B of 1.4X with
11.4% ROE – the risk reward looks balanced. With Novelis refinancing
complete, Hindalco now has greater financial flexibility to fund its growth
projects – however, at 7X FY12E EV/EBITDA, this appears to be priced in.
Risks: higher LME prices, delayed project execution.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Hindalco Industries (HALC.BO)
Neutral Equity Research
Below expectations on lower volumes and higher input costs
What surprised us
Hindalco reported 3QFY11 stand-alone net income of Rs4.6 bn (up 8% yoy
and 6% qoq), which is 9% below our and 13% below Reuters’ consensus
expectations. EBITDA came in at Rs7.4 bn, which is 8% below our
estimates – on account of lower sales volumes in both aluminium and
copper and higher cost pressures. Key highlights: Aluminium: Despite
better geographic mix and higher realisations, revenue growth was only
5% yoy on account of lower volumes in both alumina (maintenance
shutdown at Renukoot) and aluminium (9kt production loss due to Hirakud
power outage). EBIT margins were maintained at 23% despite higher
energy costs. Copper: Copper volumes were impacted by a cooling tower
outage at Dahej (10 kt production loss). Despite better by-product
realisations, EBIT margins compressed 100 bp yoy (to 3.6%) due to lower
Tc-Rc rates, appreciating rupee and higher energy costs. There are some
delays to the ongoing expansion projects – the company now expects
Mahan smelter by Oct 2011 and Utkal refinery in early 2012.
What to do with the stock
We cut our FY11E-13E EPS estimates by 7%-16% to factor in lower
volumes, delayed expansions and higher costs. We maintain our Neutral
rating and 12-m P/B based TP of Rs207 (reflecting limited change to our
consolidated BV per share). At current valuations – FY12E P/B of 1.4X with
11.4% ROE – the risk reward looks balanced. With Novelis refinancing
complete, Hindalco now has greater financial flexibility to fund its growth
projects – however, at 7X FY12E EV/EBITDA, this appears to be priced in.
Risks: higher LME prices, delayed project execution.
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