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Hindalco Industries (HNDL)
Metals & Mining
Good quarter neutralized by guidance cut. Novelis reported 2QFY12 adjusted
EBITDA of US$301 mn (+3.8% yoy), ahead of our estimate. Rolled product shipments
declined 2.3% yoy on slowdown in key segments. Novelis has cut FY2012E adjusted
EBITDA guidance by 4% to US$1.1-1.15 bn. Novelis retained operating cash flow and
free cash flow guidance for the year. We will build in revised numbers post Hindalco
earnings on November 10, 2011. We maintain ADD rating on inexpensive valuations.
A reasonable quarter; EBITDA grows, shipments decline yoy
Novelis reported 2QFY12 adjusted EBITDA of US$301 mn, 3% ahead of our estimate. Solid
EBITDA growth was led by margin expansion to US$393/tonne (+2.5% qoq, +4.1% yoy) even as
volumes declined 2% yoy. EBITDA/tonne increased on continued increase in conversion premium
and shift in deliveries. Surprisingly, Europe was the strongest geography with flat volumes while
Americas and Asia shipments declined 2-4%. Further, beverage can shipments grew 1.9% yoy to
437 kt while other flat rolled product deliveries declined 8.1% to 283 kt. Net income grew 93.5%
yoy and qoq to US$120 mn, primarily on tax write-back of US$50 mn; the company attributed this
to re-measurement of liabilities after significant depreciation of Real against US$.
Guidance cut on soft demand
Novelis has cut FY2012E EBITDA guidance by 4% to US$1.1-1.15 bn. Novelis attributed the entire
cut to lower shipments versus earlier business plans. Novelis expects a combination of destocking
in Europe, soft infrastructure demand, adjustment in consumer electronics segment and floods in
Thailand to hurt deliveries. We would not be surprised with a 5-6% decline in shipments in
3QFY12E. Novelis indicated that it may be open to giving up volumes in the pricing/volume
equation.
Still going strong on expansion plan despite slowdown
Novelis has reiterated its strategic capex plan of US$1.5 bn over the next three years that will
expand its capacity by 1,000 ktpa through a combination debottlenecking and expansion projects.
Novelis attributed two reasons for continuation of capex—(1) short payback period of the
debottlenecking capex; close to 250 ktpa capacity expansion will be through this route, and (2)
positive view on the long-term growth prospects for variety of aluminium applications. This capex
can be easily funded through internal cash generation; Novelis has retained FY2012E free cash
flow guidance of US$600-700 mn and capex guidance of US$550-600 mn.
To review estimates post Hindalco’s results
We may cut Novelis EBITDA estimate by 2-3% for FY2012E and fine tune estimates for the
subsequent years. We maintain ADD rating on Hindalco due to inexpensive valuations.
Good progress on expansion plans
Novelis is bullish on the long-term growth prospects and has hence undertaken a number of
debottlenecking and new capacity expansion projects. We discuss some of these expansion
projects below:
Brazil mill expansion. Novelis is expanding its Pinda facility in South America by 220 kt
at a total capex cost of US$300 mn. This is scheduled to come on stream by end-
CY2012E with the prime focus being on the can sheet market segment.
North America mill expansion. It is also investing US$200 mn towards expanding its
North America Oswego plant facilities by 200 kt which is expected to be completed by
mid-CY2013E. This will help meet demand of auto customers. The company has
forecasted strong demand in the automobile segment over the next few years, driven
primarily by end-users in China.
Korea mill expansion. It is also incurring a capex of US$400 mn in expanding its South
Korea mill facilities by 350 kt. This expansion primarily targets to serve the can and
automotive segments. This project too is on track and set to be commissioned by end-
CY2013E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindalco Industries (HNDL)
Metals & Mining
Good quarter neutralized by guidance cut. Novelis reported 2QFY12 adjusted
EBITDA of US$301 mn (+3.8% yoy), ahead of our estimate. Rolled product shipments
declined 2.3% yoy on slowdown in key segments. Novelis has cut FY2012E adjusted
EBITDA guidance by 4% to US$1.1-1.15 bn. Novelis retained operating cash flow and
free cash flow guidance for the year. We will build in revised numbers post Hindalco
earnings on November 10, 2011. We maintain ADD rating on inexpensive valuations.
A reasonable quarter; EBITDA grows, shipments decline yoy
Novelis reported 2QFY12 adjusted EBITDA of US$301 mn, 3% ahead of our estimate. Solid
EBITDA growth was led by margin expansion to US$393/tonne (+2.5% qoq, +4.1% yoy) even as
volumes declined 2% yoy. EBITDA/tonne increased on continued increase in conversion premium
and shift in deliveries. Surprisingly, Europe was the strongest geography with flat volumes while
Americas and Asia shipments declined 2-4%. Further, beverage can shipments grew 1.9% yoy to
437 kt while other flat rolled product deliveries declined 8.1% to 283 kt. Net income grew 93.5%
yoy and qoq to US$120 mn, primarily on tax write-back of US$50 mn; the company attributed this
to re-measurement of liabilities after significant depreciation of Real against US$.
Guidance cut on soft demand
Novelis has cut FY2012E EBITDA guidance by 4% to US$1.1-1.15 bn. Novelis attributed the entire
cut to lower shipments versus earlier business plans. Novelis expects a combination of destocking
in Europe, soft infrastructure demand, adjustment in consumer electronics segment and floods in
Thailand to hurt deliveries. We would not be surprised with a 5-6% decline in shipments in
3QFY12E. Novelis indicated that it may be open to giving up volumes in the pricing/volume
equation.
Still going strong on expansion plan despite slowdown
Novelis has reiterated its strategic capex plan of US$1.5 bn over the next three years that will
expand its capacity by 1,000 ktpa through a combination debottlenecking and expansion projects.
Novelis attributed two reasons for continuation of capex—(1) short payback period of the
debottlenecking capex; close to 250 ktpa capacity expansion will be through this route, and (2)
positive view on the long-term growth prospects for variety of aluminium applications. This capex
can be easily funded through internal cash generation; Novelis has retained FY2012E free cash
flow guidance of US$600-700 mn and capex guidance of US$550-600 mn.
To review estimates post Hindalco’s results
We may cut Novelis EBITDA estimate by 2-3% for FY2012E and fine tune estimates for the
subsequent years. We maintain ADD rating on Hindalco due to inexpensive valuations.
Good progress on expansion plans
Novelis is bullish on the long-term growth prospects and has hence undertaken a number of
debottlenecking and new capacity expansion projects. We discuss some of these expansion
projects below:
Brazil mill expansion. Novelis is expanding its Pinda facility in South America by 220 kt
at a total capex cost of US$300 mn. This is scheduled to come on stream by end-
CY2012E with the prime focus being on the can sheet market segment.
North America mill expansion. It is also investing US$200 mn towards expanding its
North America Oswego plant facilities by 200 kt which is expected to be completed by
mid-CY2013E. This will help meet demand of auto customers. The company has
forecasted strong demand in the automobile segment over the next few years, driven
primarily by end-users in China.
Korea mill expansion. It is also incurring a capex of US$400 mn in expanding its South
Korea mill facilities by 350 kt. This expansion primarily targets to serve the can and
automotive segments. This project too is on track and set to be commissioned by end-
CY2013E.
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