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Volume CAGR at 14% over FY11-13E
Hindalco has embarked upon an ambitious Rs450bn expansion plan to
raise its domestic aluminium capacity 3.6x and alumina 3x by FY16.
The projects are running with delays of 6-9 months compared to their
original schedule and we expect further slippages of 3-6 months. We
see the Mahan smelter contributing 0.1mn tons in FY13 against the
management guidance of 0.2mn tons. We expect volume CAGR of
14% over FY11-13 as expansions are back-ended.
Depreciating rupee to aid standalone margin expansion
Hindalco’s standalone business is impacted by rising raw material and
power costs. Pressure on margins would further accentuate as the
company would be required to buy e-auction or imported coal as the
allotted mine for Mahan is awaiting clearance and tapering linkages
would be hard to come by. On the other side, the depreciation in the
rupee would lead to higher product prices for the company and reduce
the impact of lower metal prices globally. We expect the impact of
rising input costs would be offset by strong aluminium prices (due to
rupee depreciation) and margins to expand marginally over FY11-13E.
Novelis margins to climb further
Novelis has benefited from strong demand across various product
categories and increasing margins, given capacity constraints in the
rolled products market. Margins have expanded as the company
managed to reduce energy consumption and earn better conversion
premium for its products on the back of an improving product mix. In
FY13, marginal rebound in demand and debottlenecking activities
would drive 4-5% volume growth for Novelis. We expect adjusted
EBIDTA/ton to increase from US$346/ton in FY11 to US$359/ton in
FY12 and US$368/ton in FY13. We believe that Novelis would be able
to meet its revised FY12 EBIDTA guidance of US$1.1-1.15bn.
Novelis to drive earnings
Hindalco has corrected sharply on account of 1) delay in capacity
expansion plan 2) rising interest costs 3) high coal costs 4) weak
commodity prices. We believe that most of the negatives are priced in.
We expect the company to witness an EBIDTA CAGR of 14.7% over
FY11-13 led by higher contribution from Novelis. Earnings from Novelis
would be resilient enough to withstand any global shocks and would
provide downside support to the stock price. We recommend a BUY
rating based on our sum-of-the-parts (SOTP) 9-month fair value of
Rs185.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Volume CAGR at 14% over FY11-13E
Hindalco has embarked upon an ambitious Rs450bn expansion plan to
raise its domestic aluminium capacity 3.6x and alumina 3x by FY16.
The projects are running with delays of 6-9 months compared to their
original schedule and we expect further slippages of 3-6 months. We
see the Mahan smelter contributing 0.1mn tons in FY13 against the
management guidance of 0.2mn tons. We expect volume CAGR of
14% over FY11-13 as expansions are back-ended.
Depreciating rupee to aid standalone margin expansion
Hindalco’s standalone business is impacted by rising raw material and
power costs. Pressure on margins would further accentuate as the
company would be required to buy e-auction or imported coal as the
allotted mine for Mahan is awaiting clearance and tapering linkages
would be hard to come by. On the other side, the depreciation in the
rupee would lead to higher product prices for the company and reduce
the impact of lower metal prices globally. We expect the impact of
rising input costs would be offset by strong aluminium prices (due to
rupee depreciation) and margins to expand marginally over FY11-13E.
Novelis margins to climb further
Novelis has benefited from strong demand across various product
categories and increasing margins, given capacity constraints in the
rolled products market. Margins have expanded as the company
managed to reduce energy consumption and earn better conversion
premium for its products on the back of an improving product mix. In
FY13, marginal rebound in demand and debottlenecking activities
would drive 4-5% volume growth for Novelis. We expect adjusted
EBIDTA/ton to increase from US$346/ton in FY11 to US$359/ton in
FY12 and US$368/ton in FY13. We believe that Novelis would be able
to meet its revised FY12 EBIDTA guidance of US$1.1-1.15bn.
Novelis to drive earnings
Hindalco has corrected sharply on account of 1) delay in capacity
expansion plan 2) rising interest costs 3) high coal costs 4) weak
commodity prices. We believe that most of the negatives are priced in.
We expect the company to witness an EBIDTA CAGR of 14.7% over
FY11-13 led by higher contribution from Novelis. Earnings from Novelis
would be resilient enough to withstand any global shocks and would
provide downside support to the stock price. We recommend a BUY
rating based on our sum-of-the-parts (SOTP) 9-month fair value of
Rs185.
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