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Hindalco Industries (HNDL IN, INR 137, Buy)
Commissioning of the 350kt greenfield project at Mahan is delayed to June 2012 due to low LME prices and coal security issues. Ramp-up at 1.5mt Utkal refinery too is expected to be slow with production guidance of ~300-350kt for FY14. The 350kt Aditya smelter is likely to get commissioned by Q1FY14; towards which INR45bn have been spent so far. While we broadly retain our FY13 estimates, factoring delays and no benefits from the Aditya smelter, we cut our FY14 EBITDA estimates by ~6%. Maintain‘BUY’ with revised TP of INR181/share (INR 197 earlier).
Delay at Mahan; slow ramp up expected at Utkal
The 350kt Mahan smelter is delayed owing to low LME price and coal security issues. Initially, the company will use external coal (open market + imported) but has guided for faster ramp up of the facility within a year with production guidance of ~60-70kt and ~300kt for FY13 and FY14 respectively. While we are aligning our Mahan volume estimate for FY13 to 60kt (from 90kt earlier), we retain our 90kt assumption for FY14 on a conservative basis. The 1.5mt Utkal alumina refinery is slated to commission in Q4FY13, however citing slow ramp-up, company is guiding for production of ~300-350kt for FY14. Accordingly, we are lowering volume estimate from this project to 300kt from 750kt assumed earlier.
Aditya smelter to commission by April 2013; no benefits factored
Company has spent INR45bn, through internal accruals, for the 0.35mt Aditya smelter expansion and expects commissioning by April 2013. Further, it expects production of 70-80kt in absence of captive coal or 100-120kt with captive coal for FY14. We are however not factoring this project in our estimates.
Outlook and valuations: Positive; maintain ‘BUY’
While we broadly retain our FY13 estimates, we cut our FY14 EBITDA estimates by ~6% factoring project delays. We increase our discount to CWIP from 55% to 60% due to project delays. Maintain ‘BUY/Sector Outperformer’ recommendation/rating with revised target price of INR181/share.
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