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No triggers ahead
The delay in the Utkal refinery and un-availability of captive coal in Mahan (in
initial period) is likely to impact Hindalco severely. Mahan will have to import
alumina till Utkal comes online and without captive coal, we don’t see Mahan
making much money at PBT level. A further delay in Utkal / Mahan coal
cannot be ruled out, which will worsen the picture further. We see Hindalco’s
EPS growth in single digits over FY12-14 and see a lack of triggers in the
stock on a 12m view. We cut FY12-14 EPS by 2-5% and downgrade Hindalco
to U-PF from O-PF with a target price of Rs195.
Utkal delay and Mahan coal block issues to impact Hindalco hard
We expect Hindalco’s Mahan smelter project to get commissioned in Apr-12
(company targets Dec-11) and the Utkal Alumina refinery in Apr-13 (company
targets Dec-12). As a result, Mahan might have to depend on imported alumina in
FY13. We don’t expect Hindalco to divert its existing surplus alumina to Mahan, as
it earns higher margins on it after converting to specialty alumina. Even if
clearances for the Mahan coal block come through soon, the mine is not likely to
start production in FY13. The Mahan smelter will have to depend on ‘tapering
linkage’ from Coal India, which might not fully come through given Coal India’s
coal supply issues and we don’t rule out Hindalco needing to use some eauction/
imported coal. With imported alumina and higher coal costs, Mahan’s
smelting costs will be higher than Hindalco’s existing smelting costs and we doubt
if Mahan can make much money at PBT level.
Cutting FY12-14 EPS by 2-5%; single-digit EPS CAGR over FY11-14
We cut FY12-14 consol EPS by 2-5% factoring in 1) 3-4% higher aluminium prices
based on CLSA’s new price forecasts; 2) Higher aluminium costs post Mahan
commissioning; 3) Higher Novelis capex; and 4) Higher ABML costs. We now see
Hindalco’s EPS growth in single-digits over the FY12-14 period. Any further delays
in Utkal will impact estimates further.
Lack of triggers in the stock; downgrade to U-PF with a TP of Rs195
We see risk of more project delays in Hindalco and believe that the only positive
triggers possible in the next 12m are higher aluminium prices or a surprise at
Novelis. Our estimates already factor in an expansion in Novelis’ margins. Given
the large delays announced in Utkal and our view that more delays are possible,
we remove Utkal from our valuations. Our new 12m SOTP target price for
Hindalco is Rs195 and given limited upside, anaemic earnings growth profile and
lack of positive triggers, we downgrade our rating to U-PF from O-PF. Any sign of
an early commissioning of Utkal or Mahan coal block could make us take a more
constructive view on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
No triggers ahead
The delay in the Utkal refinery and un-availability of captive coal in Mahan (in
initial period) is likely to impact Hindalco severely. Mahan will have to import
alumina till Utkal comes online and without captive coal, we don’t see Mahan
making much money at PBT level. A further delay in Utkal / Mahan coal
cannot be ruled out, which will worsen the picture further. We see Hindalco’s
EPS growth in single digits over FY12-14 and see a lack of triggers in the
stock on a 12m view. We cut FY12-14 EPS by 2-5% and downgrade Hindalco
to U-PF from O-PF with a target price of Rs195.
Utkal delay and Mahan coal block issues to impact Hindalco hard
We expect Hindalco’s Mahan smelter project to get commissioned in Apr-12
(company targets Dec-11) and the Utkal Alumina refinery in Apr-13 (company
targets Dec-12). As a result, Mahan might have to depend on imported alumina in
FY13. We don’t expect Hindalco to divert its existing surplus alumina to Mahan, as
it earns higher margins on it after converting to specialty alumina. Even if
clearances for the Mahan coal block come through soon, the mine is not likely to
start production in FY13. The Mahan smelter will have to depend on ‘tapering
linkage’ from Coal India, which might not fully come through given Coal India’s
coal supply issues and we don’t rule out Hindalco needing to use some eauction/
imported coal. With imported alumina and higher coal costs, Mahan’s
smelting costs will be higher than Hindalco’s existing smelting costs and we doubt
if Mahan can make much money at PBT level.
Cutting FY12-14 EPS by 2-5%; single-digit EPS CAGR over FY11-14
We cut FY12-14 consol EPS by 2-5% factoring in 1) 3-4% higher aluminium prices
based on CLSA’s new price forecasts; 2) Higher aluminium costs post Mahan
commissioning; 3) Higher Novelis capex; and 4) Higher ABML costs. We now see
Hindalco’s EPS growth in single-digits over the FY12-14 period. Any further delays
in Utkal will impact estimates further.
Lack of triggers in the stock; downgrade to U-PF with a TP of Rs195
We see risk of more project delays in Hindalco and believe that the only positive
triggers possible in the next 12m are higher aluminium prices or a surprise at
Novelis. Our estimates already factor in an expansion in Novelis’ margins. Given
the large delays announced in Utkal and our view that more delays are possible,
we remove Utkal from our valuations. Our new 12m SOTP target price for
Hindalco is Rs195 and given limited upside, anaemic earnings growth profile and
lack of positive triggers, we downgrade our rating to U-PF from O-PF. Any sign of
an early commissioning of Utkal or Mahan coal block could make us take a more
constructive view on the stock.
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