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Hindalco Industries
When delay is not so bad
Event
3QFY11 in line results – though street would be a bit disappointed:
Hindalco reported results for 3QFY11, which were in line with our estimates
though lower than consensus forecasts. We have now incorporated results by
its subsidiary Novelis as well as building in delays announced in its green field
projects. We maintain Outperform and trim our TP to Rs280 from Rs286.
Impact
Results on an improving trend: Net sales of Rs59.2bn in 3QFY11 were up
12% YoY driven by strength in aluminium and copper prices. Aluminium
division’s PBIT at Rs4.7bn, was up 6% YoY, though the copper division
reported PBIT of Rs1.4bn, a dip of Rs164m. PAT at Rs4.6bn was up 8% YoY
and 6% QoQ.
Building in delays..: Hindalco announced delays in its greenfield project to
the tune of 6 month to an year. We are building in delays as announced and
slightly more. While the delay in commissioning of the Utkal alumina project
is hurting profitability, but delay in aluminium smelters are adding to the profit
as they were loss-making as per our global aluminium price forecasts.
..but increasing the earnings… We have increased our FY13 estimates by
11% because of delays in smelter expansions, which on our aluminium price
forecast was diluting the earnings. However, we have reduced FY11 numbers
substantially to include the one-off cost of restructured debt and the
restructuring cost of about USD$100m incurred at Novelis in this quarter.
..and now more comfortable on debt/equity: Slightly more spacing
between projects has reduced debt to equity for FY12 to 1.2x from 1.4x. The
recent restructuring of debt at Novelis helped reduce overall net interest cost.
Earnings and target price revision
We are changing our EPS estimates to Rs14.3, Rs21.7 and Rs16.9 per share
for FY11, FY12 and FY13, respectively.
Price catalyst
12-month price target: Rs280.00 based on a PER methodology.
Catalyst: Further price increases by Novelis and strength in Aluminium prices
Action and recommendation
Maintain Outperform: Hindalco is the best aluminium play in the region and
a de-risked way to play the short-term strength in aluminium prices, in our
view. Stable earnings from Novelis, which generates 60% of earnings, provide
a great buffer while its low-cost Indian operations provide the leverage to
rising aluminium prices. Maintain Outperform.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindalco Industries
When delay is not so bad
Event
3QFY11 in line results – though street would be a bit disappointed:
Hindalco reported results for 3QFY11, which were in line with our estimates
though lower than consensus forecasts. We have now incorporated results by
its subsidiary Novelis as well as building in delays announced in its green field
projects. We maintain Outperform and trim our TP to Rs280 from Rs286.
Impact
Results on an improving trend: Net sales of Rs59.2bn in 3QFY11 were up
12% YoY driven by strength in aluminium and copper prices. Aluminium
division’s PBIT at Rs4.7bn, was up 6% YoY, though the copper division
reported PBIT of Rs1.4bn, a dip of Rs164m. PAT at Rs4.6bn was up 8% YoY
and 6% QoQ.
Building in delays..: Hindalco announced delays in its greenfield project to
the tune of 6 month to an year. We are building in delays as announced and
slightly more. While the delay in commissioning of the Utkal alumina project
is hurting profitability, but delay in aluminium smelters are adding to the profit
as they were loss-making as per our global aluminium price forecasts.
..but increasing the earnings… We have increased our FY13 estimates by
11% because of delays in smelter expansions, which on our aluminium price
forecast was diluting the earnings. However, we have reduced FY11 numbers
substantially to include the one-off cost of restructured debt and the
restructuring cost of about USD$100m incurred at Novelis in this quarter.
..and now more comfortable on debt/equity: Slightly more spacing
between projects has reduced debt to equity for FY12 to 1.2x from 1.4x. The
recent restructuring of debt at Novelis helped reduce overall net interest cost.
Earnings and target price revision
We are changing our EPS estimates to Rs14.3, Rs21.7 and Rs16.9 per share
for FY11, FY12 and FY13, respectively.
Price catalyst
12-month price target: Rs280.00 based on a PER methodology.
Catalyst: Further price increases by Novelis and strength in Aluminium prices
Action and recommendation
Maintain Outperform: Hindalco is the best aluminium play in the region and
a de-risked way to play the short-term strength in aluminium prices, in our
view. Stable earnings from Novelis, which generates 60% of earnings, provide
a great buffer while its low-cost Indian operations provide the leverage to
rising aluminium prices. Maintain Outperform.
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