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Mahan: Only one pot erected so far
Renukoot: Gradual improvement
Maintain estimates for FY12/13; Buy with TP of INR226
Targeting to commission 359ktpa smelting capacity at Mahan by January
2013 - ambitious, given that only one pot of the two lines of 180 pots each
has been erected till now.
Intends to increase metal production at the Renukoot plant by 10ktpa
through efficiency improvement and debottlenecking.
Maintain our earnings estimates for FY12 and FY13. Buy, with a target price
of INR226.
Mahan: Only one pot erected so far though civil work at smelter is
nearly complete; first 150MW CPP targeted by December
HNDL is setting up a 359ktpa smelter along with a 900MW CPP in the Sidhi district of
Madhya Pradesh over an area of ~3,700 acres. The smelter (360KA-AP36S technology
from RTA) will consist of two pot lines of 180 pots each, capable of producing 2.7tons
of metal per pot per day. The state of the art (ALPSYS) pot controller will ensure high
degree of automation. Manpower costs are estimated to be USD12/ton i.e. almost 1/
5th of the existing smelting operations at Renukoot.
Construction work on site is in full swing, as HNDL is targeting to commission 40 pots in
the first line by December 2011 and the balance 140 pots of the first line will come on
stream by July 2012. The second pot line is expected by January 2013. Over 10,000
workers are working on the site. The first cast house will consist of 360ktpa ingots and
SOW ingots capacity. This is a very ambitious target - only one pot has been erected so
far, though civil work is nearly complete.
Though HNDL expects 204k tons of hot metal production in FY13, we believe that
commercial production will take some time after first metal tapping and expect
meaningful production to start only in 2HFY13. We have built in ~40k tons of production
from Mahan in our estimates.
Construction work at the 900MW CPP (6x150MW) is also in full swing. BTG and other
equipment from BHEL have already reached the site and commissioning is under
progress. The first unit of 150MW is likely to undergo hydraulic test in the first week of
October. Coal and ash handling units are expected to be ready by December. Distribution
line to connect output to the state grid is almost ready.
HNDL intends to commission the first unit of 150MW by the end of December and the
full 900MW will be ready by June 2012. Though this appears ambitious, we expect
commissioning of the entire CPP by the end of 2QFY13.
There is yet no clarity on the expected cost of production at Mahan, as both captive
coal and bauxite remain elusive in the near term. HNDL is hopeful of receiving tapering
coal linkage for the near-term CPP requirement and remains positive on developments
related to Mahan coal block. Though the Mahan project was envisaged with sourcing of
alumina from Utkal, it may have to depend on surplus alumina production at Belgaum
and Muri in the interim. As a result, third party sale of alumina will decline.
Renukoot: Focus on continuous improvement to reduce costs and
increase production
HNDL's aluminum smelting and refining operations at Renukoot started in 1962, with a
20ktpa metal smelter and 40ktpa alumina refinery. In 49 years, the plant has increased
its capacities to 350ktpa of metal and 0.7mtpa of refinery through brownfield expansions
and technology upgradation.
~30% of the bauxite required for the refinery (of the total ~3mtpa) is procured through
external purchases under long-term contracts while the rest is sourced from captive
mines in Jharkhand and Chhattisgarh.
Over the last few years, the grade of captive bauxite has fallen from 42% to 38%. Total
R&R of captive bauxite (including bauxite mines attached to Utkal project) mines is now
147m tons. HNDL has already applied of more leases in Jharkhand, Chhattisgarh and
Madhya Pradesh, which will increase R&R to 443m tons.
The 350ktpa smelting plant is based on AP technology and involves 2,139 pots, with
72KA capacity arranged in 11 lines, giving ~0.55 tons of production per pot per day. The
increased pot capacity to 72KA from 52KA earlier is a result of continuous upgradation
and improvement to increase efficiencies. The operations at Renukoot also contain
downstream facilities, with fabrication units, which include extrusion products (35ktpa),
wire rods, and rolled sheets (95ktpa).
HNDL intends to increase metal production at the Renukoot plant by 10ktpa through
efficiency improvement and debottlenecking. Over the next few years, it plans to increase
smelting capacity at Renukoot by ~16% by utilizing full pot potential. In FY11, the plant
produced 410ktpa of aluminum metal. HNDL arranged for additional alumina for this
from its existing Muri and Belgaum refineries.
Power required for the smelting operations is supplied through its 742MW captive power
plant at Renusagar. ~60% of the coal required for the CPP is procured through linkage
from NCL (Northern Coalfields of Coal India) and the rest through external purchases (eauction
and washed coal).
Valuations attractive; maintain Buy
We maintain our earnings estimates for FY12 and FY13. We factor in incremental metal
production of ~40k tons and no alumina production from Utkal in our FY13 estimates. Over
FY11-14, we expect volumes of both alumina and aluminum to grow at a strong CAGR of
22%, driving earnings growth. The entire benefits of the ongoing expansions in India (Mahan
and Utkal) as well as Novelis are likely to come only in FY14. The stock is attractive at 1.1x
FY13E BV, an EV of 5x FY13E EBITDA, and at a 44% discount to NAV. We value the stock at
INR226 (EV of 7x FY13E EBITDA). Maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahan: Only one pot erected so far
Renukoot: Gradual improvement
Maintain estimates for FY12/13; Buy with TP of INR226
Targeting to commission 359ktpa smelting capacity at Mahan by January
2013 - ambitious, given that only one pot of the two lines of 180 pots each
has been erected till now.
Intends to increase metal production at the Renukoot plant by 10ktpa
through efficiency improvement and debottlenecking.
Maintain our earnings estimates for FY12 and FY13. Buy, with a target price
of INR226.
Mahan: Only one pot erected so far though civil work at smelter is
nearly complete; first 150MW CPP targeted by December
HNDL is setting up a 359ktpa smelter along with a 900MW CPP in the Sidhi district of
Madhya Pradesh over an area of ~3,700 acres. The smelter (360KA-AP36S technology
from RTA) will consist of two pot lines of 180 pots each, capable of producing 2.7tons
of metal per pot per day. The state of the art (ALPSYS) pot controller will ensure high
degree of automation. Manpower costs are estimated to be USD12/ton i.e. almost 1/
5th of the existing smelting operations at Renukoot.
Construction work on site is in full swing, as HNDL is targeting to commission 40 pots in
the first line by December 2011 and the balance 140 pots of the first line will come on
stream by July 2012. The second pot line is expected by January 2013. Over 10,000
workers are working on the site. The first cast house will consist of 360ktpa ingots and
SOW ingots capacity. This is a very ambitious target - only one pot has been erected so
far, though civil work is nearly complete.
Though HNDL expects 204k tons of hot metal production in FY13, we believe that
commercial production will take some time after first metal tapping and expect
meaningful production to start only in 2HFY13. We have built in ~40k tons of production
from Mahan in our estimates.
Construction work at the 900MW CPP (6x150MW) is also in full swing. BTG and other
equipment from BHEL have already reached the site and commissioning is under
progress. The first unit of 150MW is likely to undergo hydraulic test in the first week of
October. Coal and ash handling units are expected to be ready by December. Distribution
line to connect output to the state grid is almost ready.
HNDL intends to commission the first unit of 150MW by the end of December and the
full 900MW will be ready by June 2012. Though this appears ambitious, we expect
commissioning of the entire CPP by the end of 2QFY13.
There is yet no clarity on the expected cost of production at Mahan, as both captive
coal and bauxite remain elusive in the near term. HNDL is hopeful of receiving tapering
coal linkage for the near-term CPP requirement and remains positive on developments
related to Mahan coal block. Though the Mahan project was envisaged with sourcing of
alumina from Utkal, it may have to depend on surplus alumina production at Belgaum
and Muri in the interim. As a result, third party sale of alumina will decline.
Renukoot: Focus on continuous improvement to reduce costs and
increase production
HNDL's aluminum smelting and refining operations at Renukoot started in 1962, with a
20ktpa metal smelter and 40ktpa alumina refinery. In 49 years, the plant has increased
its capacities to 350ktpa of metal and 0.7mtpa of refinery through brownfield expansions
and technology upgradation.
~30% of the bauxite required for the refinery (of the total ~3mtpa) is procured through
external purchases under long-term contracts while the rest is sourced from captive
mines in Jharkhand and Chhattisgarh.
Over the last few years, the grade of captive bauxite has fallen from 42% to 38%. Total
R&R of captive bauxite (including bauxite mines attached to Utkal project) mines is now
147m tons. HNDL has already applied of more leases in Jharkhand, Chhattisgarh and
Madhya Pradesh, which will increase R&R to 443m tons.
The 350ktpa smelting plant is based on AP technology and involves 2,139 pots, with
72KA capacity arranged in 11 lines, giving ~0.55 tons of production per pot per day. The
increased pot capacity to 72KA from 52KA earlier is a result of continuous upgradation
and improvement to increase efficiencies. The operations at Renukoot also contain
downstream facilities, with fabrication units, which include extrusion products (35ktpa),
wire rods, and rolled sheets (95ktpa).
HNDL intends to increase metal production at the Renukoot plant by 10ktpa through
efficiency improvement and debottlenecking. Over the next few years, it plans to increase
smelting capacity at Renukoot by ~16% by utilizing full pot potential. In FY11, the plant
produced 410ktpa of aluminum metal. HNDL arranged for additional alumina for this
from its existing Muri and Belgaum refineries.
Power required for the smelting operations is supplied through its 742MW captive power
plant at Renusagar. ~60% of the coal required for the CPP is procured through linkage
from NCL (Northern Coalfields of Coal India) and the rest through external purchases (eauction
and washed coal).
Valuations attractive; maintain Buy
We maintain our earnings estimates for FY12 and FY13. We factor in incremental metal
production of ~40k tons and no alumina production from Utkal in our FY13 estimates. Over
FY11-14, we expect volumes of both alumina and aluminum to grow at a strong CAGR of
22%, driving earnings growth. The entire benefits of the ongoing expansions in India (Mahan
and Utkal) as well as Novelis are likely to come only in FY14. The stock is attractive at 1.1x
FY13E BV, an EV of 5x FY13E EBITDA, and at a 44% discount to NAV. We value the stock at
INR226 (EV of 7x FY13E EBITDA). Maintain Buy.
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