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Hindalco Industries
Neutral ;HALC.BO, HNDL IN
Q3FY11 significantly below estimates; timelines pushed back for new projects
• Q3FY11 significantly below estimates: Hindalco (HNDL) reported standalone
Q3FY11 EBITDA at Rs7.4bn (+3% q/q, -1% y/y) against JPM estimate of
Rs8.5bn and Bloomberg consensus estimates of Rs8.4bn. PAT stood at Rs4.6bn
(+1% q/q, +8% y/y) against JPMe of Rs5.7bn and BBRG consensus of Rs5.3bn
implying earnings miss of 19%/13% against our/consensus estimates. This
came on the back of 10% q/q increase in primary aluminum metal prod q/q and
12% increase in average LME aluminum price q/q. (please see page 2 for more
details). HNDL stock has been weak recently and we believe the earnings miss
combined with the push back of project timelines would continue to put
pressure on the stock.
• Cost pressures hit aluminum; Q3 India demand weaker than expected:
HNDL has highlighted Rs2bn EBITDA hit in Q3 coming from Hirakud smelter
issues, copper outage and cost pressures in aluminum, of which cost inflation in
aluminum hit EBITDA by Rs1bn. We had provided for the one off impact
relating to Hirakud and copper in our estimates (and we believe so had the
Street), but the cost inflation in aluminum has been higher then estimates
(HNDL missed EBITDA by Rs1.1/1bn against our/consensus estimates). With
oil prices rising, and coal production issues at Coal India, we believe cost
pressure for aluminum (and this is industry wide and not HNDL specific) is
likely to continue. Aluminum segment PBIT stood at 23.5% in Q3 v/s
29.6% in Q1 (Q2 was impacted by Hirakud prod loss). Copper EBIT at Rs1.4bn
was 27% ahead of our estimates, while Aluminum EBIT was 26% below
estimates. As per HNDL, aluminum consumption increased only 4% for
Q3FY11/ Q3FY10, v/s +14% for H1FY11/H1FY10, while copper consumption
declined 16% Q3FY11/ Q3FY10. Given the cement and steel consumption data
for Q3 which also showed anemic demand, we believe the current demand
scenario across India metals and cement remains weak on a y/y basis. The high
base coupled with slow on the ground momentum in metals intensive economic
activity means growth rates are likely to remain weak through the next 2
quarters.
• Push back of timelines for projects: The most interesting part of the investor
presentation in our view, is the push back of Utkal (alumina refinery), with
Mahan (smelter) now presented first. HNDL expects to commission Mahan
in Oct-11, and now expects Utkal in Early 2012 v/s prior date of Q2FY12
(in the Nov-09 presentation the date was July 11). Aditya aluminum smelter
is now end 2012 v/s earlier date of Q3FY12 and the Nov-09 presentation
had the date as Oct-11. The dates for the other projects like Aditya refinery
and Jharkhand aluminum have been pushed even further. While the capex data
for YTDFY10 is not available, we would highlight that the capital employed
for the aluminum segment has increased by only Rs31bn from March-10
through Dec-10, implying that capex on the ground for the multiple growth
projects in aluminum has not been very high.
• Our earnings estimate for HNDL are currently under review
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindalco Industries
Neutral ;HALC.BO, HNDL IN
Q3FY11 significantly below estimates; timelines pushed back for new projects
• Q3FY11 significantly below estimates: Hindalco (HNDL) reported standalone
Q3FY11 EBITDA at Rs7.4bn (+3% q/q, -1% y/y) against JPM estimate of
Rs8.5bn and Bloomberg consensus estimates of Rs8.4bn. PAT stood at Rs4.6bn
(+1% q/q, +8% y/y) against JPMe of Rs5.7bn and BBRG consensus of Rs5.3bn
implying earnings miss of 19%/13% against our/consensus estimates. This
came on the back of 10% q/q increase in primary aluminum metal prod q/q and
12% increase in average LME aluminum price q/q. (please see page 2 for more
details). HNDL stock has been weak recently and we believe the earnings miss
combined with the push back of project timelines would continue to put
pressure on the stock.
• Cost pressures hit aluminum; Q3 India demand weaker than expected:
HNDL has highlighted Rs2bn EBITDA hit in Q3 coming from Hirakud smelter
issues, copper outage and cost pressures in aluminum, of which cost inflation in
aluminum hit EBITDA by Rs1bn. We had provided for the one off impact
relating to Hirakud and copper in our estimates (and we believe so had the
Street), but the cost inflation in aluminum has been higher then estimates
(HNDL missed EBITDA by Rs1.1/1bn against our/consensus estimates). With
oil prices rising, and coal production issues at Coal India, we believe cost
pressure for aluminum (and this is industry wide and not HNDL specific) is
likely to continue. Aluminum segment PBIT stood at 23.5% in Q3 v/s
29.6% in Q1 (Q2 was impacted by Hirakud prod loss). Copper EBIT at Rs1.4bn
was 27% ahead of our estimates, while Aluminum EBIT was 26% below
estimates. As per HNDL, aluminum consumption increased only 4% for
Q3FY11/ Q3FY10, v/s +14% for H1FY11/H1FY10, while copper consumption
declined 16% Q3FY11/ Q3FY10. Given the cement and steel consumption data
for Q3 which also showed anemic demand, we believe the current demand
scenario across India metals and cement remains weak on a y/y basis. The high
base coupled with slow on the ground momentum in metals intensive economic
activity means growth rates are likely to remain weak through the next 2
quarters.
• Push back of timelines for projects: The most interesting part of the investor
presentation in our view, is the push back of Utkal (alumina refinery), with
Mahan (smelter) now presented first. HNDL expects to commission Mahan
in Oct-11, and now expects Utkal in Early 2012 v/s prior date of Q2FY12
(in the Nov-09 presentation the date was July 11). Aditya aluminum smelter
is now end 2012 v/s earlier date of Q3FY12 and the Nov-09 presentation
had the date as Oct-11. The dates for the other projects like Aditya refinery
and Jharkhand aluminum have been pushed even further. While the capex data
for YTDFY10 is not available, we would highlight that the capital employed
for the aluminum segment has increased by only Rs31bn from March-10
through Dec-10, implying that capex on the ground for the multiple growth
projects in aluminum has not been very high.
• Our earnings estimate for HNDL are currently under review
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