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Copper business drives 1Q miss
Hindalco’s 1Q Ebitda was up 4% YoY but came in 8% below estimates mainly
due to a disappointment in copper business. Copper EBIT declined 30% QoQ
due to lower production and margins. Aluminium EBIT was up 7% QoQ
thanks to higher LME prices. Net profit was still 3% above estimates due to
higher other income. Hindalco has maintained commissioning targets for the
greenfield projects but has again highlighted execution challenges. We
maintain estimates pending revision of base metal forecasts by our regional
team. Till then, U-PF stays.
1Q Ebitda 8% below estimates; higher other income boosts results
Hindalco reported 1Q standalone Ebitda of Rs8.7bn – up 4% YoY but 8% below
estimates due to weaker copper business performance. Copper EBIT declined 30%
QoQ as – (1) production was down 14% QoQ due to bi-annual shutdown at the
Dahej smelter, and (2) Ebit margins were down 80bps QoQ due to higher energy
costs. Aluminium Ebit was up 7% QoQ helped by higher LME prices (up 4% QoQ).
Aluminium costs were surprisingly flat on QoQ basis despite the full impact of
higher coal prices. 1Q net profit at Rs6.4bn was up 21% YoY and came 3% above
estimates due to higher-than-expected other income. 1Q other income rose 69%
QoQ, boosted by Rs0.7bn dividend from ABML.
No further delays in projects but mgmt highlights execution challenges
Hindalco has maintained commissioning targets for the three greenfield projects –
Mahan smelter by end-2011, Utkal refinery by 2H-2012, and Aditya smelter by
early-2013. Hindalco had earlier announced 3-15m delays in the three projects.
The company highlighted that execution challenges, severe inflationary pressures
and uncertain regulatory environment are affecting project progress. We expect
more delays to creep in closer to commissioning and build in start of Mahan
smelter only by Apr-12 and Utkal refinery in Apr-13 in our estimates.
Negative commentary for both aluminium and copper
Management’s commentary on industry outlook is weak. India aluminium demand
is already showing some slowdown and global demand is at risk due to weakening
economic outlook. This is also reflected in the sharp 10% correction in LME ali
prices over last 2 weeks. Copper concentrate markets have also tightened due to
strikes at some of the major mines, delays in new projects, and decline in ore
grade resulting in correction in spot TcRc from recent peaks.
Maintain estimates pending revision to base metal forecasts
Stock is down 16% since our June downgrade and is 22% below our TP but we
see downside to estimates. Aluminium prices are 9% below our FY12 forecasts
and our spot EPS for FY12-13 is 20-30% below current EPS. We maintain ests for
now pending an imminent revision to base metal forecasts by the regional team.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Copper business drives 1Q miss
Hindalco’s 1Q Ebitda was up 4% YoY but came in 8% below estimates mainly
due to a disappointment in copper business. Copper EBIT declined 30% QoQ
due to lower production and margins. Aluminium EBIT was up 7% QoQ
thanks to higher LME prices. Net profit was still 3% above estimates due to
higher other income. Hindalco has maintained commissioning targets for the
greenfield projects but has again highlighted execution challenges. We
maintain estimates pending revision of base metal forecasts by our regional
team. Till then, U-PF stays.
1Q Ebitda 8% below estimates; higher other income boosts results
Hindalco reported 1Q standalone Ebitda of Rs8.7bn – up 4% YoY but 8% below
estimates due to weaker copper business performance. Copper EBIT declined 30%
QoQ as – (1) production was down 14% QoQ due to bi-annual shutdown at the
Dahej smelter, and (2) Ebit margins were down 80bps QoQ due to higher energy
costs. Aluminium Ebit was up 7% QoQ helped by higher LME prices (up 4% QoQ).
Aluminium costs were surprisingly flat on QoQ basis despite the full impact of
higher coal prices. 1Q net profit at Rs6.4bn was up 21% YoY and came 3% above
estimates due to higher-than-expected other income. 1Q other income rose 69%
QoQ, boosted by Rs0.7bn dividend from ABML.
No further delays in projects but mgmt highlights execution challenges
Hindalco has maintained commissioning targets for the three greenfield projects –
Mahan smelter by end-2011, Utkal refinery by 2H-2012, and Aditya smelter by
early-2013. Hindalco had earlier announced 3-15m delays in the three projects.
The company highlighted that execution challenges, severe inflationary pressures
and uncertain regulatory environment are affecting project progress. We expect
more delays to creep in closer to commissioning and build in start of Mahan
smelter only by Apr-12 and Utkal refinery in Apr-13 in our estimates.
Negative commentary for both aluminium and copper
Management’s commentary on industry outlook is weak. India aluminium demand
is already showing some slowdown and global demand is at risk due to weakening
economic outlook. This is also reflected in the sharp 10% correction in LME ali
prices over last 2 weeks. Copper concentrate markets have also tightened due to
strikes at some of the major mines, delays in new projects, and decline in ore
grade resulting in correction in spot TcRc from recent peaks.
Maintain estimates pending revision to base metal forecasts
Stock is down 16% since our June downgrade and is 22% below our TP but we
see downside to estimates. Aluminium prices are 9% below our FY12 forecasts
and our spot EPS for FY12-13 is 20-30% below current EPS. We maintain ests for
now pending an imminent revision to base metal forecasts by the regional team.
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