Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Last week we visited Renukoot smelter (70% of Al production) and
Mahan smelter (upcoming project of $2.3 bn capex). Mahan is critical
as market currently assigns a negative value to the project.
● On Mahan timelines, our discussion with plant supervisors
suggested that multiple activities need to be completed to allow
first metal tapping by Dec-11. In our view, contingencies built into
the execution plan are low and could result in further delay of
couple of months but a six month delay is ruled out.
● More important is availability of coal as with captive coal, Mahan
would be value accretive even at current LME (Fig 1) but with the
linkage and E-auction mix, Mahan would not be accretive.
Adjoining region has coal availability of 60 mt with E-auction coal
of 6 mt versus project requirement of 4.1 mt (at full utilisation).
● We do not ascribe value to Mahan currently as a decision on
captive mine is pending. If the decision is in favour of Hindalco,
then the negative value ascribed to the project could turn to zero
(mine development takes >15 months and so it is too early to
ascribe positive value). Next EGoM meeting is on 9 October.
Mahan project currently gets negative value in CMP
We visited Renukoot smelter in Uttar Pradesh (70% of existing
aluminium production) and Mahan smelter in Madhya Pradesh
(upcoming greenfield project of $2.3 bn capex) last week. Mahan is a
critical project as it is currently being given a negative value in CMP.
With Utkal refinery delayed, Mahan should be evaluated as a
standalone smelter. In our view, alumina source is not as critical as it
only impacts transportation cost. Instead, coal availability is crucial for
Mahan. With captive mines, Mahan would be value accretive even at
current LME (Figure 1) but with a linkage and E-auction mix, Mahan
would not be accretive (a scenario built into the current price).
Adjoining region has only 6mt of E-auction coal
Our discussion with plant head suggested that options other than
captive mine are to depend on tapering linkage and E-auction coal.
The region has total coal availability of 60 mt with E-auction coal of 6
mt. Total coal requirement of the project is 4.1 mt and FY12 need is
2.3 mt (FY12 target is 57% utilisation = 204 kt) - a high requirement to
be met just through E-auction from adjoining areas. Therefore, delay
in getting tapering linkage implies lower utilisation for the project.
Favourable Mahan coal decision may alter negative value
As we show in Figure 1, Mahan would be EBITDA positive with a
combination of E-auction and tapering linkage but PBT negative.
Therefore, getting captive mine is essential. Our target price values
Mahan at zero currently as a decision on captive mine is still pending.
If the decision is in favour of Hindalco, then at least the negative value
ascribed to the project would turn to zero (mine development would at
least take 15 months, thus too early to ascribe positive value).
Mahan timelines: walking a tight rope
As per schedule, first unit of power plant (150 MW) and first metal
tapping in Mahan smelter is expected by Dec-11. Our discussion with
the plant supervisors suggested that several parallel activities need to
be completed before the end result is achieved. Given multiple
activities and low contingencies built into the execution (our view), it is
plausible that the commissioning schedule may be pushed out by
another couple of months but a further delay of six months is ruled out
(unless coal availability impacts project timelines).
● Power plant: Hydro test and synchronisation for the first unit in
next three months; Cooling tower under construction; cabling to
the control tower needs to be done. A 220 KV transmission line to
be ready by Nov-11; ash handling to be complete by Dec-11.
● Smelter (359 kt): Wagon procurement to start after application
with Railways is cleared (Coal & alumina would move by Railways
and have lead time of 2.5 months); 40 pots to be set up by Dec-11
Renukoot: impressed about how it is still going strong
Renukoot smelter, completing 50 years next year, has a conversion
cost comparable to Hirakud due to continuous improvement!
● Application for Renukoot smelter expansion to 476 kt from 410 kt
production (FY11) has been submitted to MoEF.
● Current bauxite mine life of 15 years (with 30% external sourcing)
can be extended to 25 years if Hindalco gets bauxite reserves
applied in Madhya Pradesh.
● Interaction with plant heads suggested margin on value-added
products (two-third of volumes) is 40-50%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Last week we visited Renukoot smelter (70% of Al production) and
Mahan smelter (upcoming project of $2.3 bn capex). Mahan is critical
as market currently assigns a negative value to the project.
● On Mahan timelines, our discussion with plant supervisors
suggested that multiple activities need to be completed to allow
first metal tapping by Dec-11. In our view, contingencies built into
the execution plan are low and could result in further delay of
couple of months but a six month delay is ruled out.
● More important is availability of coal as with captive coal, Mahan
would be value accretive even at current LME (Fig 1) but with the
linkage and E-auction mix, Mahan would not be accretive.
Adjoining region has coal availability of 60 mt with E-auction coal
of 6 mt versus project requirement of 4.1 mt (at full utilisation).
● We do not ascribe value to Mahan currently as a decision on
captive mine is pending. If the decision is in favour of Hindalco,
then the negative value ascribed to the project could turn to zero
(mine development takes >15 months and so it is too early to
ascribe positive value). Next EGoM meeting is on 9 October.
Mahan project currently gets negative value in CMP
We visited Renukoot smelter in Uttar Pradesh (70% of existing
aluminium production) and Mahan smelter in Madhya Pradesh
(upcoming greenfield project of $2.3 bn capex) last week. Mahan is a
critical project as it is currently being given a negative value in CMP.
With Utkal refinery delayed, Mahan should be evaluated as a
standalone smelter. In our view, alumina source is not as critical as it
only impacts transportation cost. Instead, coal availability is crucial for
Mahan. With captive mines, Mahan would be value accretive even at
current LME (Figure 1) but with a linkage and E-auction mix, Mahan
would not be accretive (a scenario built into the current price).
Adjoining region has only 6mt of E-auction coal
Our discussion with plant head suggested that options other than
captive mine are to depend on tapering linkage and E-auction coal.
The region has total coal availability of 60 mt with E-auction coal of 6
mt. Total coal requirement of the project is 4.1 mt and FY12 need is
2.3 mt (FY12 target is 57% utilisation = 204 kt) - a high requirement to
be met just through E-auction from adjoining areas. Therefore, delay
in getting tapering linkage implies lower utilisation for the project.
Favourable Mahan coal decision may alter negative value
As we show in Figure 1, Mahan would be EBITDA positive with a
combination of E-auction and tapering linkage but PBT negative.
Therefore, getting captive mine is essential. Our target price values
Mahan at zero currently as a decision on captive mine is still pending.
If the decision is in favour of Hindalco, then at least the negative value
ascribed to the project would turn to zero (mine development would at
least take 15 months, thus too early to ascribe positive value).
Mahan timelines: walking a tight rope
As per schedule, first unit of power plant (150 MW) and first metal
tapping in Mahan smelter is expected by Dec-11. Our discussion with
the plant supervisors suggested that several parallel activities need to
be completed before the end result is achieved. Given multiple
activities and low contingencies built into the execution (our view), it is
plausible that the commissioning schedule may be pushed out by
another couple of months but a further delay of six months is ruled out
(unless coal availability impacts project timelines).
● Power plant: Hydro test and synchronisation for the first unit in
next three months; Cooling tower under construction; cabling to
the control tower needs to be done. A 220 KV transmission line to
be ready by Nov-11; ash handling to be complete by Dec-11.
● Smelter (359 kt): Wagon procurement to start after application
with Railways is cleared (Coal & alumina would move by Railways
and have lead time of 2.5 months); 40 pots to be set up by Dec-11
Renukoot: impressed about how it is still going strong
Renukoot smelter, completing 50 years next year, has a conversion
cost comparable to Hirakud due to continuous improvement!
● Application for Renukoot smelter expansion to 476 kt from 410 kt
production (FY11) has been submitted to MoEF.
● Current bauxite mine life of 15 years (with 30% external sourcing)
can be extended to 25 years if Hindalco gets bauxite reserves
applied in Madhya Pradesh.
● Interaction with plant heads suggested margin on value-added
products (two-third of volumes) is 40-50%.
No comments:
Post a Comment