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4Q11 results
Hindalco’s 4Q net profit at Rs7.1bn was up 7% YoY and 26% above estimates
mainly due to lower tax expense and higher other income. Both aluminium
and copper divisions reported strong QoQ Ebit growth led by strong volumes
and - 1) higher LME prices and absence of Hirakud restart costs for former,
and 2) higher by-product credits for latter. Hindalco has received Rs30bn as
return of capital from Novelis, which is taken directly to the balance sheet and
is likely to have limited tax outgo. We believe that the market is still fearing
further project delays and stock performance will improve only in 2H as we
get closer to commissioning of Mahan smelter and Utkal refinery.
4Q net profit beat estimates on lower tax and higher other income
Hindalco reported 4Q Ebitda of Rs9.1 bn - up 10% YoY and 1% above our
estimate. Aluminium division EBIT grew 21% QoQ led by slightly higher metal
volumes (up 2% QoQ), higher LME prices (up 7% QoQ) and absence of Hirakud
restart costs. Copper division EBIT was also up 44% QoQ driven by higher
volumes (up 6% QoQ) and by-product credits. Other expense was down 12% QoQ
due to Rs410mn forex gain on return of capital from Novelis. This return of capital
also led to higher-than-expected other income of Rs1.1bn – up 73% QoQ (up
35% YoY). Lower-than-expected tax rate of 10% in 4Q (compared to 20% in
3Q11) led to a higher 26% beat at net profit compared to 6% beat at PBT.
Rs30bn as return of capital from Novelis; limited tax outgo
Hindalco has received Rs30bn (US$650mn) as return of capital from Novelis which
is taken directly to the balance sheet by reducing the nominal value of shares in
the investments. The P&L impact of the transfer is Rs410mn of forex gain which
has been adjusted in other expenditure line item. This implies that the overall tax
outgo on this transfer of cash is likely to be limited but we will seek more clarity
on this from the management.
Progress on greenfield projects will be key to stock performance
Hindalco has underperformed in YTD 2011 in spite of rising aluminium prices due
to project delays and rising costs in India. We believe that the market is still
fearing further project delays which could keep the stock range bound in the nearterm.
However, we see little risk of delays in Mahan smelter and Utkal refinery
beyond end-FY12 and expect stock performance to improve in 2H as we get closer
to the commissioning of these projects. While Hindalco has not shared details of
project progress in the 4Q release, it has reported Rs65bn of total spend on
greenfield projects in FY11, which is in line with our estimate. We continue to like
the stock as we see substantial upside on a 2-year view once the greenfield
capacities are commissioned and ramp-up. Maintain estimates pending Novelis
results; retain BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
4Q11 results
Hindalco’s 4Q net profit at Rs7.1bn was up 7% YoY and 26% above estimates
mainly due to lower tax expense and higher other income. Both aluminium
and copper divisions reported strong QoQ Ebit growth led by strong volumes
and - 1) higher LME prices and absence of Hirakud restart costs for former,
and 2) higher by-product credits for latter. Hindalco has received Rs30bn as
return of capital from Novelis, which is taken directly to the balance sheet and
is likely to have limited tax outgo. We believe that the market is still fearing
further project delays and stock performance will improve only in 2H as we
get closer to commissioning of Mahan smelter and Utkal refinery.
4Q net profit beat estimates on lower tax and higher other income
Hindalco reported 4Q Ebitda of Rs9.1 bn - up 10% YoY and 1% above our
estimate. Aluminium division EBIT grew 21% QoQ led by slightly higher metal
volumes (up 2% QoQ), higher LME prices (up 7% QoQ) and absence of Hirakud
restart costs. Copper division EBIT was also up 44% QoQ driven by higher
volumes (up 6% QoQ) and by-product credits. Other expense was down 12% QoQ
due to Rs410mn forex gain on return of capital from Novelis. This return of capital
also led to higher-than-expected other income of Rs1.1bn – up 73% QoQ (up
35% YoY). Lower-than-expected tax rate of 10% in 4Q (compared to 20% in
3Q11) led to a higher 26% beat at net profit compared to 6% beat at PBT.
Rs30bn as return of capital from Novelis; limited tax outgo
Hindalco has received Rs30bn (US$650mn) as return of capital from Novelis which
is taken directly to the balance sheet by reducing the nominal value of shares in
the investments. The P&L impact of the transfer is Rs410mn of forex gain which
has been adjusted in other expenditure line item. This implies that the overall tax
outgo on this transfer of cash is likely to be limited but we will seek more clarity
on this from the management.
Progress on greenfield projects will be key to stock performance
Hindalco has underperformed in YTD 2011 in spite of rising aluminium prices due
to project delays and rising costs in India. We believe that the market is still
fearing further project delays which could keep the stock range bound in the nearterm.
However, we see little risk of delays in Mahan smelter and Utkal refinery
beyond end-FY12 and expect stock performance to improve in 2H as we get closer
to the commissioning of these projects. While Hindalco has not shared details of
project progress in the 4Q release, it has reported Rs65bn of total spend on
greenfield projects in FY11, which is in line with our estimate. We continue to like
the stock as we see substantial upside on a 2-year view once the greenfield
capacities are commissioned and ramp-up. Maintain estimates pending Novelis
results; retain BUY.
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