Exceptional items adversely impact PAT… • Hindalco Industries:: ICICI Securities, PDF link

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Exceptional items adversely impact PAT…
• Hindalco Industries reported a mixed set of Q2FY15 (standalone)
numbers wherein topline and EBITDA came in line with our estimate
whereas PAT was lower than our estimate on account of a net
exceptional loss to the tune of | 431.2 crore. The standalone PAT
came in at | 78.8 crore, down 77.9% YoY and below our estimate of
| 377.2 crore
• Exceptional loss for the quarter included | 563 crore towards
additional levy of | 295/tonne on extracted coal for the period up to
September 30, 2014 and provision for diminution in carrying value of
investment in Aditya Birla Minerals to the tune of | 258 crore. During
the quarter, there was forex gain on return of capital to the tune of
| 361 crore and write back of provision to the tune of | 29 crore
• Hindalco Industries reported a total operating income of | 8554.3
crore, up 7% QoQ and 35.7% YoY and above our estimate of |
8507.5 crore. The company reported a standalone EBITDA of | 897
crore (EBITDA margin: 10.5%), up 19.9% QoQ and 66.2% YoY and
higher than our estimate of | 871.2 crore (EBITDA margin: 10.2%)
Production at inflection point for domestic operations
Hindalco is a metal major with business interests in copper smelting &
aluminium manufacturing domestically. The company is also a leading
aluminium converter globally through subsidiary Novelis. On the
domestic aluminium business front, the company is undergoing an
ambitious capacity expansion wherein its aluminium (primary metal)
production capacity is expected to increase from 560 KT currently to 1278
KT by the end of FY15E. Subsequently, we expect domestic aluminium
metal production to grow at 22.4% CAGR in FY14-16E.
Novelis: Stable performance; improving product mix to aid margins
In 2007, Hindalco acquired Novelis (rolled product capacity 3.0 MTPA) for
~US$6.0 billion, including debt in an all-cash transaction. Novelis is one
of the world’s leading aluminium rolling and recycling companies
supplying premium products (beverage cans, automotive and high-end
specialities) in the markets of North America, Europe, Asia and South
America. Novelis’ sales volumes are expected to grow at a CAGR of 6.6%
in FY14-16E. On the back of increasing share of the automobile segment
in the overall sales mix, we expect the EBITDA/tonne to improve from
US$289/tonne in FY14 to US$320/tonne by FY15E and further to
US$350/tonne by FY16E.
In line operational performance; maintain HOLD!!
Hindalco reported an in line performance operationally for Q2FY15. Going
forward, we expect the domestic operations to report a stable
performance while Novelis’ performance is likely to improve, going
forward, on account of the increasing share of the high margin
automotive segment in the overall product mix. We have valued Hindalco
on an SOTP basis, thereby arriving at a target price of | 148. We maintain
our HOLD rating on the stock.

LINK
http://content.icicidirect.com/mailimages/IDirect_HindalcoInds_Q2FY15.pdf