● Consolidated EBITDA beat our estimates by 18%, with Rs5.1 bn
of the Rs5.2 bn surprise coming from Europe; slightly better
operations in India offset weakness elsewhere. Net profit was
substantially higher due to leverage and non-recurring tax gains.
● The EU surprise though was far from convincing; while sentiment
has improved, business hasn't. The EBITDA/t surprise was likely
due to fixed costs getting transferred to inventory. With high
inventory, spot prices weak and intent to regain share, this does
not portend high margins ahead.
● Caution on Phase II is welcome news even if it means Phase I will
be suboptimal. But debt is still an issue: 1Q saw a minor rise in
debt due to higher working capital, but large drawdowns linked to
capex are ahead. We expect US$12 bn-plus of debt by FY15.
● Having fallen dramatically this year, the stock was due a bounce,
esp. with global IP recovering. The reported gains in EU may
make these persist a few months. But we would use the
opportunity to cut positions, as problems of oversupply and rising
debt are likely to last several years.
of the Rs5.2 bn surprise coming from Europe; slightly better
operations in India offset weakness elsewhere. Net profit was
substantially higher due to leverage and non-recurring tax gains.
● The EU surprise though was far from convincing; while sentiment
has improved, business hasn't. The EBITDA/t surprise was likely
due to fixed costs getting transferred to inventory. With high
inventory, spot prices weak and intent to regain share, this does
not portend high margins ahead.
● Caution on Phase II is welcome news even if it means Phase I will
be suboptimal. But debt is still an issue: 1Q saw a minor rise in
debt due to higher working capital, but large drawdowns linked to
capex are ahead. We expect US$12 bn-plus of debt by FY15.
● Having fallen dramatically this year, the stock was due a bounce,
esp. with global IP recovering. The reported gains in EU may
make these persist a few months. But we would use the
opportunity to cut positions, as problems of oversupply and rising
debt are likely to last several years.