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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• Bauxite sourcing issue for
alumina refinery and shut
down of copper smelter leads
to a 12% QoQ top-line decline
• Further delays with expansion
projects cannot be ruled out,
we believe
• FY12/13 EPS forecasts cut by a
further 16.0% /17.2% on coalcost
hikes
�� What's new
Hindalco’s 1Q FY12 standalone
results were lower than our and the
market’s forecasts.
For the quarter, Hindalco’s net sales
of Rs60.3bn (up 16.5% YoY, down
11.9% QoQ) were 13.7% lower than
our forecast. The lower-thanexpected
net sales were due largely
to lower alumina production at the
Renukut facility, due to bauxite
shortages at its refinery, and lower
copper production due to a biannual
shutdown at its smelter.
�� What's the impact
EBITDA of Rs8.7bn (up 4.2% YoY,
down 7.3% QoQ) was 7.0% lower
than our forecast, while the adjusted
PAT of Rs5.75bn was also 9.9%
lower than our forecasts.
We have revised down our FY12 and
FY13 EPS forecasts by 16.0% and
17.2%, respectively, as we believe
coal costs for the Mahan smelter
could be higher than we expected
previously.
Furthermore, a lack of captive coal
(and lack of clarity over coal
sourcing) for its 900MW captive
power plant is likely to lead to a
higher cost structure at its new
projects, as has been seen at
Vedanta Aluminium Limited (Not
listed). We also believe that after
commissioning of these facilities,
depreciation and interest costs will
be reflected in the income statement,
while the profitability of these
projects will remain under pressure
due to a lack of captive coal mines.
�� What we recommend
The share price has corrected nearly
15% over the past month, but we
believe the market’s concerns appear
to be priced in, with the stock trading
at a 5.0x EV/EBITDA multiple on
our revised FY12 forecasts.
The stock currently factors in
significant delays for the company’s
greenfield and brownfield projects.
However, any announcement
relating to start of a project in 2011
is likely to result in an improvement
in sentiment, and thus the
company’s valuations. We believe
the long-term growth story remains
intact, although the short-term
outlook is mired with uncertainties
regarding coal sourcing, which we
believe is more than factored into
the current stock price.
We have lowered our target price to
Rs179 (from Rs232 earlier), based
on a 6.0x EV/EBITDA multiple on
our FY12 earnings forecast. We see
project delays, lower-than-forecast
aluminium prices as the key risks.
�� How we differ
We believe Hindalco’s expansion
projects in India are likely to
surprise the market positively, hence
are more bullish than the street.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• Bauxite sourcing issue for
alumina refinery and shut
down of copper smelter leads
to a 12% QoQ top-line decline
• Further delays with expansion
projects cannot be ruled out,
we believe
• FY12/13 EPS forecasts cut by a
further 16.0% /17.2% on coalcost
hikes
�� What's new
Hindalco’s 1Q FY12 standalone
results were lower than our and the
market’s forecasts.
For the quarter, Hindalco’s net sales
of Rs60.3bn (up 16.5% YoY, down
11.9% QoQ) were 13.7% lower than
our forecast. The lower-thanexpected
net sales were due largely
to lower alumina production at the
Renukut facility, due to bauxite
shortages at its refinery, and lower
copper production due to a biannual
shutdown at its smelter.
�� What's the impact
EBITDA of Rs8.7bn (up 4.2% YoY,
down 7.3% QoQ) was 7.0% lower
than our forecast, while the adjusted
PAT of Rs5.75bn was also 9.9%
lower than our forecasts.
We have revised down our FY12 and
FY13 EPS forecasts by 16.0% and
17.2%, respectively, as we believe
coal costs for the Mahan smelter
could be higher than we expected
previously.
Furthermore, a lack of captive coal
(and lack of clarity over coal
sourcing) for its 900MW captive
power plant is likely to lead to a
higher cost structure at its new
projects, as has been seen at
Vedanta Aluminium Limited (Not
listed). We also believe that after
commissioning of these facilities,
depreciation and interest costs will
be reflected in the income statement,
while the profitability of these
projects will remain under pressure
due to a lack of captive coal mines.
�� What we recommend
The share price has corrected nearly
15% over the past month, but we
believe the market’s concerns appear
to be priced in, with the stock trading
at a 5.0x EV/EBITDA multiple on
our revised FY12 forecasts.
The stock currently factors in
significant delays for the company’s
greenfield and brownfield projects.
However, any announcement
relating to start of a project in 2011
is likely to result in an improvement
in sentiment, and thus the
company’s valuations. We believe
the long-term growth story remains
intact, although the short-term
outlook is mired with uncertainties
regarding coal sourcing, which we
believe is more than factored into
the current stock price.
We have lowered our target price to
Rs179 (from Rs232 earlier), based
on a 6.0x EV/EBITDA multiple on
our FY12 earnings forecast. We see
project delays, lower-than-forecast
aluminium prices as the key risks.
�� How we differ
We believe Hindalco’s expansion
projects in India are likely to
surprise the market positively, hence
are more bullish than the street.
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