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Volume CAGR at 14% over FY11-13E
Hindalco has embarked upon an ambitious Rs450bn expansion plan
to raise its domestic aluminium capacity 3.6x and alumina 3x by
FY16. The projects are running with delay of 6-9 months compared
to their original schedule and we expect further slippages of 3-6
months. We expect the Mahan smelter to contribute 0.1mn tons in
FY13 against the management guidance of 0.24mn tons. We expect
volume CAGR of 14% over FY11-13 as expansions are back ended.
Rising coal costs to cap standalone margin expansion
Hindalco’s standalone business is impacted by rising raw material
and power costs. We expect the pressure to rise further following the
price hikes by Coal India (70% of coal supply). Pressure on margins
would further accentuate as the company would be required to buy
e-auction or imported coal as the allotted mine for Mahan is MoEF’s
‘No-Go’ zone and tapering linkages would be hard to come by. As a
result, we expect the impact of strong aluminium prices to be offset
by rising input costs, and margins to be capped over FY11-13E.
Novelis margins to climb further
Novelis has benefited from strong demand across various product
categories and increasing margins, given capacity constraints in the
rolled products market. Margins have expanded as the company
managed to reduce energy consumption and earn better conversion
premium for its products on the back of an improving product mix.
Over the next two years, debottlenecking activities would drive 4-5%
volume growth for Novelis. We expect adjusted EBIDTA/ton to
increase from US$346/ton in FY11 to US$362/ton in FY12 and
US$383/ton in FY13. We also believe that Novelis would be able to
meet its FY12 EBIDTA guidance of US$1.15-1.2bn.
Novelis to drive earnings
Hindalco has corrected sharply over the last three months on
account of 1) delay in capacity expansion plan 2) rising interest costs
3) high coal costs 4) weak commodity prices. We believe that most
of the negatives are priced in. We expect the company to witness an
EBIDTA CAGR of 15.2% over FY11-13 led by higher contribution
from Novelis. Earnings from Novelis would be resilient enough to
withstand any global shocks and would provide downside support to
the stock price. We recommend a BUY on the stock based on our
sum-of-the-parts (SOTP) fair value of Rs202.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Volume CAGR at 14% over FY11-13E
Hindalco has embarked upon an ambitious Rs450bn expansion plan
to raise its domestic aluminium capacity 3.6x and alumina 3x by
FY16. The projects are running with delay of 6-9 months compared
to their original schedule and we expect further slippages of 3-6
months. We expect the Mahan smelter to contribute 0.1mn tons in
FY13 against the management guidance of 0.24mn tons. We expect
volume CAGR of 14% over FY11-13 as expansions are back ended.
Rising coal costs to cap standalone margin expansion
Hindalco’s standalone business is impacted by rising raw material
and power costs. We expect the pressure to rise further following the
price hikes by Coal India (70% of coal supply). Pressure on margins
would further accentuate as the company would be required to buy
e-auction or imported coal as the allotted mine for Mahan is MoEF’s
‘No-Go’ zone and tapering linkages would be hard to come by. As a
result, we expect the impact of strong aluminium prices to be offset
by rising input costs, and margins to be capped over FY11-13E.
Novelis margins to climb further
Novelis has benefited from strong demand across various product
categories and increasing margins, given capacity constraints in the
rolled products market. Margins have expanded as the company
managed to reduce energy consumption and earn better conversion
premium for its products on the back of an improving product mix.
Over the next two years, debottlenecking activities would drive 4-5%
volume growth for Novelis. We expect adjusted EBIDTA/ton to
increase from US$346/ton in FY11 to US$362/ton in FY12 and
US$383/ton in FY13. We also believe that Novelis would be able to
meet its FY12 EBIDTA guidance of US$1.15-1.2bn.
Novelis to drive earnings
Hindalco has corrected sharply over the last three months on
account of 1) delay in capacity expansion plan 2) rising interest costs
3) high coal costs 4) weak commodity prices. We believe that most
of the negatives are priced in. We expect the company to witness an
EBIDTA CAGR of 15.2% over FY11-13 led by higher contribution
from Novelis. Earnings from Novelis would be resilient enough to
withstand any global shocks and would provide downside support to
the stock price. We recommend a BUY on the stock based on our
sum-of-the-parts (SOTP) fair value of Rs202.
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