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Hindalco Industries (HNDL)
Metals & Mining
A strong quarter. Novelis’ 1QFY12 adjusted EBITDA of US$306 mn (+16.3% yoy) was
3.6% better than our estimate. Adjusted EBITDA/tonne grew 13.7% yoy and 9.7% qoq
to US$384/tonne. Novelis reiterated adjusted EBITDA and OCF guidance for FY2012E of
US$1.2 bn and US$0.7 bn, respectively. Novelis is investing heavily on capacity
expansion which will fuel reasonable growth over the next 3-4 years and provide
valuation support to Hindalco. Maintain ADD rating; estimates to be reviewed post
Hindalco’s 1QFY12 results.
Strong EBITDA performance, net income impacted by reorganization charge
Novelis reported 1QFY12 adjusted EBITDA of US$306 mn (+16.3% yoy, +9.3% qoq), higher than
our estimate of US$295 mn. Solid EBITDA performance was led by a combination of marginal
growth in shipments, increase in conversion premium, appreciation of Euro against US$ and shift
in product mix. Adjusted EBITDA/tonne of US$384 increased 9.7% qoq and 13.7% yoy to a new
high. Strong adjusted EBITDA performance, however, failed to translate into a strong net income
(US$62 mn, 24% qoq growth, not comparable yoy) since it includes a restructuring charge of
US$19 mn. Restructuring charge pertains to closure of the foil rolling and laminating operations at
Bridgnorth facility in UK and one rolling mill at its Santo Andre Plant in Brazil.
Weak FCF in 1QFY12; maintains FY2012E FCF (before capex) guidance of US$600-700 mn
Cash burn in 1QFY12 was US$194 mn despite modest capex of US$67 mn (FY2012E capex
guidance is US$550-600 mn). FCF was impacted by (1) increase in inventory and aluminum prices
and (2) semi-annual interest payout of US$106 mn. Interest payment cycle has changed to 1Q and
3Q after refinancing from 2Q and 4Q earlier.
Reasonable volume growth from a combination of debottlenecking and capacity expansion
Novelis has outlined capacity expansion of 1 mtpa (total capacity of 4 mtpa post expansion)
comprising 770 ktpa from expansion projects and 250 ktpa from debottlenecking. The company
has earmarked capex of US$1.5 bn over the next three years (1) 200 kt expansion in North
America Oswego plant that will come up by mid-2013 to serve auto customers, (2) 220 kt Pinda
mill expansion in South America focused on can sheet market and scheduled to come on stream
by end-CY2012 and (3) 350 kt South Korea mill expansion to serve can, automotive and
electronics market to come online by end-CY2013.
Estimates review post Hindalco’s 1QFY12 results
Novelis is a solid and steady profit generating engine with reasonable growth prospects and
capable of partially funding Hindalco’s capacity expansion projects. We will revisit our estimates
and review our target price post Hindalco’s quarterly results declaration. Retain our ADD rating.
Key takeaways from the 1QFY12 earnings conference call
�� The company expects to incur a cumulative capex of US$1.5 bn on the debottlenecking
and capacity expansion plans to be spread evenly over the next three years.
�� The company also laid stress on potentially improving its sustainable EBITDA/tonne
through better cost management and improving its conversion premium.
�� There was strong demand from the auto and beverage can segment during the quarter.
However, sales to the electronic segment have slowed down in 1QFY12 but the company
expects demand to pick up over the next couple of quarters.
�� The company uses recycled material for around 30-35% of its current output and hopes
to increase the use of recycled material to around 80% of its output by the end of the
decade.
�� The company reiterated its focus to concentrate on premium products which currently
make up around 70% of its product portfolio.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindalco Industries (HNDL)
Metals & Mining
A strong quarter. Novelis’ 1QFY12 adjusted EBITDA of US$306 mn (+16.3% yoy) was
3.6% better than our estimate. Adjusted EBITDA/tonne grew 13.7% yoy and 9.7% qoq
to US$384/tonne. Novelis reiterated adjusted EBITDA and OCF guidance for FY2012E of
US$1.2 bn and US$0.7 bn, respectively. Novelis is investing heavily on capacity
expansion which will fuel reasonable growth over the next 3-4 years and provide
valuation support to Hindalco. Maintain ADD rating; estimates to be reviewed post
Hindalco’s 1QFY12 results.
Strong EBITDA performance, net income impacted by reorganization charge
Novelis reported 1QFY12 adjusted EBITDA of US$306 mn (+16.3% yoy, +9.3% qoq), higher than
our estimate of US$295 mn. Solid EBITDA performance was led by a combination of marginal
growth in shipments, increase in conversion premium, appreciation of Euro against US$ and shift
in product mix. Adjusted EBITDA/tonne of US$384 increased 9.7% qoq and 13.7% yoy to a new
high. Strong adjusted EBITDA performance, however, failed to translate into a strong net income
(US$62 mn, 24% qoq growth, not comparable yoy) since it includes a restructuring charge of
US$19 mn. Restructuring charge pertains to closure of the foil rolling and laminating operations at
Bridgnorth facility in UK and one rolling mill at its Santo Andre Plant in Brazil.
Weak FCF in 1QFY12; maintains FY2012E FCF (before capex) guidance of US$600-700 mn
Cash burn in 1QFY12 was US$194 mn despite modest capex of US$67 mn (FY2012E capex
guidance is US$550-600 mn). FCF was impacted by (1) increase in inventory and aluminum prices
and (2) semi-annual interest payout of US$106 mn. Interest payment cycle has changed to 1Q and
3Q after refinancing from 2Q and 4Q earlier.
Reasonable volume growth from a combination of debottlenecking and capacity expansion
Novelis has outlined capacity expansion of 1 mtpa (total capacity of 4 mtpa post expansion)
comprising 770 ktpa from expansion projects and 250 ktpa from debottlenecking. The company
has earmarked capex of US$1.5 bn over the next three years (1) 200 kt expansion in North
America Oswego plant that will come up by mid-2013 to serve auto customers, (2) 220 kt Pinda
mill expansion in South America focused on can sheet market and scheduled to come on stream
by end-CY2012 and (3) 350 kt South Korea mill expansion to serve can, automotive and
electronics market to come online by end-CY2013.
Estimates review post Hindalco’s 1QFY12 results
Novelis is a solid and steady profit generating engine with reasonable growth prospects and
capable of partially funding Hindalco’s capacity expansion projects. We will revisit our estimates
and review our target price post Hindalco’s quarterly results declaration. Retain our ADD rating.
Key takeaways from the 1QFY12 earnings conference call
�� The company expects to incur a cumulative capex of US$1.5 bn on the debottlenecking
and capacity expansion plans to be spread evenly over the next three years.
�� The company also laid stress on potentially improving its sustainable EBITDA/tonne
through better cost management and improving its conversion premium.
�� There was strong demand from the auto and beverage can segment during the quarter.
However, sales to the electronic segment have slowed down in 1QFY12 but the company
expects demand to pick up over the next couple of quarters.
�� The company uses recycled material for around 30-35% of its current output and hopes
to increase the use of recycled material to around 80% of its output by the end of the
decade.
�� The company reiterated its focus to concentrate on premium products which currently
make up around 70% of its product portfolio.
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