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Hindalco Industries
Adjusted EBITDA above expectations
Adjusted for one-offs due to breakdown at Hirakud and Dahej smelters,
Hindalco's standalone 3Q11 EBITDA was above expectations at Rs8.4bn. The
US$1bn SPV debt taken to fund the Novelis acquisition has been repaid, with
Novelis restructuring its balance sheet, a positive step, in our view. Maintain Buy.
3QFY11 Hindalco standalone results
! 3QFY11 revenues were Rs59.7bn (+2% qoq and +12% yoy), higher than our estimate of
Rs56.5bn. As expected, metal volumes were impacted by the power outage at the Hirakud
aluminium smelter and cooling power outage at Dahej smelter, which affected copper
volumes. Aluminium volumes were 136kt (+10% qoq and -4% yoy). Copper cathode
production was 80kt (-15% qoq and -10% yoy).
! Raw material costs were higher than expected at Rs39.8bn (+3% qoq and +15% yoy) versus
our estimate of Rs35.8bn. Power and fuel costs were at Rs5.5bn (-4% qoq and +8% yoy).
Management has highlighted cost escalations and plummeting copper TcRc for the quarter.
! EBITDA, impacted by higher costs, was at Rs7.4bn (+6% qoq and -1% yoy), versus our
estimate of Rs7.8bn. We note that reported EBITDA was impacted by one-time charge of
Rs1bn related to Hirakud and Dahej outages. Adjusted for this, EBITDA would have been 6%
higher than our estimate.
! PAT was at Rs4.6bn (+6% qoq and +8% yoy) versus our estimate of 4.9bn.
Smelter outage update
! Production at Hirakud smelter has been affected since July due to pot outage caused by
heavy rains. This has affected aluminium production to the tune of 26.5kt for FY11 till date.
Pot start up and restoration work has now been completed and operations have stabilized at
the smelter. The cooling tower at Dahej copper plant broke down in November 2010 and
resulted in a loss of production of 10kt for the quarter. Restoration work is now complete and
normal production has resumed. The company has insurance cover for both breakdowns and
it has initiated the claims process.
Brownfield expansion plan update
! Hirakud smelter expansion: The Hirakud smelter expansion from 155kt to 161kt is nearing
completion and will soon add to volumes. Further expansion to 213kt with 100MW CPP will
be completed by 4QFY12. The company is evaluating the next phase of expansion to 360kt,
environmental clearance for which has already been obtained.
! Hirakud flat rolled products project: The transfer of all key equipment from Novelis plant at
Rogerstone to Hirakud is underway. Orders have also been placed for the balance
equipment. this is set to be completed by October 2011.
Greenfield expansion plan update
! Utkal alumina: The 1.5mt alumina refinery with 90MW captive is on tack to be completed by
early 2012. 87% of the project cost has already been committed and financial closure
achieved.
! Mahan aluminium: The 359kt aluminium smelter with associated CPP of 900MW is on
schedule to be completed by October 2011. 90% of the project cost has been committed. The
company expects financial closure to be achieved soon. The coal requirement for the 900MW
CPP will be met by Mahan Coal Limited, a JV between Hindalco and Essar Power. The coal
block comes under the category of 'No-Go' area, and Hindalco is yet to get forest clearance.
The company has applied for tapering coal linkage till they can start captive production.
! Aditya aluminium: The 359kt smelter with 900MW captive is expected to be commissioned by
end 2012. 77% of the project cost has been committed.
Copper market outlook
! Company has noted that refined copper demand in India has been negatively impacted in the
wire and cable segment due the high copper prices which has resulted in substitution with
scrap based products. However, spot TcRc has improved sharply due to temporary market
surplus. The company expects to get better TcRc terms in 2011 compared to 2010.
US$1bn Novelis SPV debt repaid
! With Novelis restructuring its balance sheet by refinancing US$2.5bn and raising additional
US$1.5bn, US$1.7bn has been repatriated as a dividend to the parent company Hindalco.
Out of this, US$1bn SPV debt taken to fund the Novelis investment has now been repaid. We
view this balance sheet restructuring as a step in the right direction considering Hindalco's
ambitious domestic expansion plans.
! We have a Buy on Hindalco with a TP of Rs315. Hindalco Industries (RIC: HALC.BO, Rec: Buy, CP: Rs210.95, TP: Rs315.00): Our target price is based on an SOTP valuation comprising the values of: 1) Hindalco's domestic
integrated aluminium-smelting and copper-smelting businesses; 2) Novelis's aluminium-processing business; 3) the Aditya Birla Minerals (Australia) copper mining business; and 4)
investments in group companies with an appropriate discount. Key risks are a lower increase in aluminium prices than we expect, rupee appreciation, a slower-than-expected capacity
ramp-up and delays in mining approvals.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindalco Industries
Adjusted EBITDA above expectations
Adjusted for one-offs due to breakdown at Hirakud and Dahej smelters,
Hindalco's standalone 3Q11 EBITDA was above expectations at Rs8.4bn. The
US$1bn SPV debt taken to fund the Novelis acquisition has been repaid, with
Novelis restructuring its balance sheet, a positive step, in our view. Maintain Buy.
3QFY11 Hindalco standalone results
! 3QFY11 revenues were Rs59.7bn (+2% qoq and +12% yoy), higher than our estimate of
Rs56.5bn. As expected, metal volumes were impacted by the power outage at the Hirakud
aluminium smelter and cooling power outage at Dahej smelter, which affected copper
volumes. Aluminium volumes were 136kt (+10% qoq and -4% yoy). Copper cathode
production was 80kt (-15% qoq and -10% yoy).
! Raw material costs were higher than expected at Rs39.8bn (+3% qoq and +15% yoy) versus
our estimate of Rs35.8bn. Power and fuel costs were at Rs5.5bn (-4% qoq and +8% yoy).
Management has highlighted cost escalations and plummeting copper TcRc for the quarter.
! EBITDA, impacted by higher costs, was at Rs7.4bn (+6% qoq and -1% yoy), versus our
estimate of Rs7.8bn. We note that reported EBITDA was impacted by one-time charge of
Rs1bn related to Hirakud and Dahej outages. Adjusted for this, EBITDA would have been 6%
higher than our estimate.
! PAT was at Rs4.6bn (+6% qoq and +8% yoy) versus our estimate of 4.9bn.
Smelter outage update
! Production at Hirakud smelter has been affected since July due to pot outage caused by
heavy rains. This has affected aluminium production to the tune of 26.5kt for FY11 till date.
Pot start up and restoration work has now been completed and operations have stabilized at
the smelter. The cooling tower at Dahej copper plant broke down in November 2010 and
resulted in a loss of production of 10kt for the quarter. Restoration work is now complete and
normal production has resumed. The company has insurance cover for both breakdowns and
it has initiated the claims process.
Brownfield expansion plan update
! Hirakud smelter expansion: The Hirakud smelter expansion from 155kt to 161kt is nearing
completion and will soon add to volumes. Further expansion to 213kt with 100MW CPP will
be completed by 4QFY12. The company is evaluating the next phase of expansion to 360kt,
environmental clearance for which has already been obtained.
! Hirakud flat rolled products project: The transfer of all key equipment from Novelis plant at
Rogerstone to Hirakud is underway. Orders have also been placed for the balance
equipment. this is set to be completed by October 2011.
Greenfield expansion plan update
! Utkal alumina: The 1.5mt alumina refinery with 90MW captive is on tack to be completed by
early 2012. 87% of the project cost has already been committed and financial closure
achieved.
! Mahan aluminium: The 359kt aluminium smelter with associated CPP of 900MW is on
schedule to be completed by October 2011. 90% of the project cost has been committed. The
company expects financial closure to be achieved soon. The coal requirement for the 900MW
CPP will be met by Mahan Coal Limited, a JV between Hindalco and Essar Power. The coal
block comes under the category of 'No-Go' area, and Hindalco is yet to get forest clearance.
The company has applied for tapering coal linkage till they can start captive production.
! Aditya aluminium: The 359kt smelter with 900MW captive is expected to be commissioned by
end 2012. 77% of the project cost has been committed.
Copper market outlook
! Company has noted that refined copper demand in India has been negatively impacted in the
wire and cable segment due the high copper prices which has resulted in substitution with
scrap based products. However, spot TcRc has improved sharply due to temporary market
surplus. The company expects to get better TcRc terms in 2011 compared to 2010.
US$1bn Novelis SPV debt repaid
! With Novelis restructuring its balance sheet by refinancing US$2.5bn and raising additional
US$1.5bn, US$1.7bn has been repatriated as a dividend to the parent company Hindalco.
Out of this, US$1bn SPV debt taken to fund the Novelis investment has now been repaid. We
view this balance sheet restructuring as a step in the right direction considering Hindalco's
ambitious domestic expansion plans.
! We have a Buy on Hindalco with a TP of Rs315. Hindalco Industries (RIC: HALC.BO, Rec: Buy, CP: Rs210.95, TP: Rs315.00): Our target price is based on an SOTP valuation comprising the values of: 1) Hindalco's domestic
integrated aluminium-smelting and copper-smelting businesses; 2) Novelis's aluminium-processing business; 3) the Aditya Birla Minerals (Australia) copper mining business; and 4)
investments in group companies with an appropriate discount. Key risks are a lower increase in aluminium prices than we expect, rupee appreciation, a slower-than-expected capacity
ramp-up and delays in mining approvals.
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