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Hindalco Industries
Higher costs impact earnings
Hindalco reported 1QFY12 EBITDA of Rs8.7bn (+4% yoy and -5% qoq), in-line
with our expectation. Though volumes of both aluminium and copper were mute,
robust LME price and higher Tc/Rc and byproduct realizations drove earnings.
We maintain Buy on attractive valuations with TP of 277.
Largely in-line results
Aluminium metal production was 140.4kt (flat both yoy and qoq) 2% lower than our estimate.
Alumina production at Renukoot has been impacted due to constrained bauxite availability.
Downstream sales were also impacted by sluggish demand. Copper cathode production was
however only 73.2kt (-4% yoy and -14% qoq), impacted by the bi-annual shutdown at one of
the smelters at Dahej.
Driven by higher realizations of both copper and aluminium, net revenues were at Rs60.3bn
(+16% yoy and -12% qoq). Employee costs declined 11% qoq to Rs2.5bn. Power and fuel
costs rose sharply to Rs6.3bn (+25% yoy and +8% qoq) as the full impact of the 30% price
hike by Coal India took effect. EBITDA came in at Rs8.7bn (+4% yoy and -5% qoq), 4% lower
than our estimate of Rs9.0bn. While Aluminium EBIT was at Rs5.9bn (+8% yoy and +7% qoq)
due to higher LME, copper EBIT was at Rs1.4bn (+17% yoy and -29% qoq), driven by higher
Tc/Rc and byproduct realizations, despite lower volumes.
Other income was at Rs1.8bn, up sharply yoy both due to higher corpus of cash due to
Novelis dividend repatriation as well as dividend of Rs0.69bn from Aditya Birla Minerals, the
Australian mining subsidiary. This drove PAT to Rs6.4bn (+21% yoy and -9% qoq) versus our
estimate of Rs5.9bn.
Mt Gordon of ABML operations restart
At Aditya Birla Minerals Limited, copper in concentrate production declined 24% yoy to 11.8kt
due to an expected sharp decline in grade which fell from 3.05% to 2.20% yoy. Mt Gordon
operations have re-started and production ramp-up is progressing. Copper prices remaining
elevated is a positive for earnings, though increased operating cost and strength of AUD pose
a risk.
Greenfield expansion update
The 359kt Mahan smelter with 900MW CPP is on schedule to be commissioned by end 2011
Out of the project finance of Rs78bn, Rs34bn has been drawn so far. However, coal remains
a concern with the advisory committe of the MoEF rejecting the forest diversion proposal,
though a Group of Ministers have been constituted to decide on the same. The company has
also applied for tapering linkage.
The utkal alumina project commissioning has been pushed back with the company now
expecting it at "second half 2012" rather than "2012" earlier. The company continues to guide
Aditya aluminium smelter commissioning for early 2013. Stage 2 forest clearance has been
obtained and financing option is currently being evaluated. The company has noted that
severe inflationary pressure is being witnessed for the greenfield projects despite long lead
equipment having been tied up.
Brownfield expansion update
The Hirakud smelter expansion from 155kt to 161kt was completed in 4QFY11. This should
positively impact volumes from 2Q onwards. The expansion from 161kt to 213kt along with
100MW CPP will be commissioned in early 2012. The Hirakud FRP project is also on
schedule for completion by end 2011.
Hindalco valuations attractive; Maintain Buy
Trading at 7.9x/7.1x FY12/13F earnings and 6.5x/6.2x FY12/13F EV/EBITDA, we believe
valuations are attractive. Even ignoring the robust expansion pipeline in aluminium, the
existing businesses are available at a discount, in our view. We have a Buy rating on
Hindalco with TP of Rs277.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindalco Industries
Higher costs impact earnings
Hindalco reported 1QFY12 EBITDA of Rs8.7bn (+4% yoy and -5% qoq), in-line
with our expectation. Though volumes of both aluminium and copper were mute,
robust LME price and higher Tc/Rc and byproduct realizations drove earnings.
We maintain Buy on attractive valuations with TP of 277.
Largely in-line results
Aluminium metal production was 140.4kt (flat both yoy and qoq) 2% lower than our estimate.
Alumina production at Renukoot has been impacted due to constrained bauxite availability.
Downstream sales were also impacted by sluggish demand. Copper cathode production was
however only 73.2kt (-4% yoy and -14% qoq), impacted by the bi-annual shutdown at one of
the smelters at Dahej.
Driven by higher realizations of both copper and aluminium, net revenues were at Rs60.3bn
(+16% yoy and -12% qoq). Employee costs declined 11% qoq to Rs2.5bn. Power and fuel
costs rose sharply to Rs6.3bn (+25% yoy and +8% qoq) as the full impact of the 30% price
hike by Coal India took effect. EBITDA came in at Rs8.7bn (+4% yoy and -5% qoq), 4% lower
than our estimate of Rs9.0bn. While Aluminium EBIT was at Rs5.9bn (+8% yoy and +7% qoq)
due to higher LME, copper EBIT was at Rs1.4bn (+17% yoy and -29% qoq), driven by higher
Tc/Rc and byproduct realizations, despite lower volumes.
Other income was at Rs1.8bn, up sharply yoy both due to higher corpus of cash due to
Novelis dividend repatriation as well as dividend of Rs0.69bn from Aditya Birla Minerals, the
Australian mining subsidiary. This drove PAT to Rs6.4bn (+21% yoy and -9% qoq) versus our
estimate of Rs5.9bn.
Mt Gordon of ABML operations restart
At Aditya Birla Minerals Limited, copper in concentrate production declined 24% yoy to 11.8kt
due to an expected sharp decline in grade which fell from 3.05% to 2.20% yoy. Mt Gordon
operations have re-started and production ramp-up is progressing. Copper prices remaining
elevated is a positive for earnings, though increased operating cost and strength of AUD pose
a risk.
Greenfield expansion update
The 359kt Mahan smelter with 900MW CPP is on schedule to be commissioned by end 2011
Out of the project finance of Rs78bn, Rs34bn has been drawn so far. However, coal remains
a concern with the advisory committe of the MoEF rejecting the forest diversion proposal,
though a Group of Ministers have been constituted to decide on the same. The company has
also applied for tapering linkage.
The utkal alumina project commissioning has been pushed back with the company now
expecting it at "second half 2012" rather than "2012" earlier. The company continues to guide
Aditya aluminium smelter commissioning for early 2013. Stage 2 forest clearance has been
obtained and financing option is currently being evaluated. The company has noted that
severe inflationary pressure is being witnessed for the greenfield projects despite long lead
equipment having been tied up.
Brownfield expansion update
The Hirakud smelter expansion from 155kt to 161kt was completed in 4QFY11. This should
positively impact volumes from 2Q onwards. The expansion from 161kt to 213kt along with
100MW CPP will be commissioned in early 2012. The Hirakud FRP project is also on
schedule for completion by end 2011.
Hindalco valuations attractive; Maintain Buy
Trading at 7.9x/7.1x FY12/13F earnings and 6.5x/6.2x FY12/13F EV/EBITDA, we believe
valuations are attractive. Even ignoring the robust expansion pipeline in aluminium, the
existing businesses are available at a discount, in our view. We have a Buy rating on
Hindalco with TP of Rs277.
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