Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindalco Industries (HALC.BO)
Global Update: Remain Positive on Ally; Hindalco Top Pick
Our top metal pick in a challenging environment — Aluminium is our preferred
metal and should trade in around $2,600/t through 2013. In India, Hindalco’s aluminium
EBIT margins should be slightly better yoy in FY12 (with Hirakud stabilization, higher
prices/volumes); copper EBIT should gain from better TC/RCs and by-product sales.
Novelis offers stable margins (we estimate EBITDA of $1.1bn in FY12). Hindalco also
offers strong volume growth as aluminium capacity should rise 152% to 1.28m tpa by
end-CY12 (though coal availability remains a risk for the Mahan smelter in M.P.)
Revising TP, maintain Buy — Our global aluminium prices have been raised by ~5%
taking into account our updated commodity/economic views, recent price trends and
raw material costs. Our cons PAT rises by 3% in FY12 and 2% in FY13 vs previous
forecasts. We continue to value Hindalco standalone at 8.5x PE but roll forward to
Jun12 (from Mar12) & other businesses at 7x EV/EBITDA (vs. 7.5x due to a decline in
global multiples). Hindalco’s standalone value accounts for Rs121 (of Rs268) vs Rs119
(of Rs269) earlier. At our TP, it would trade at 7.6x FY12 EV/EBITDA and 12.8x PE.
Upside triggers: further LME gains and/or Mahan coal block approval.
Aluminium: preferred metal — Key issues: 1) Power cuts in China to lead to closure
of old capacity and production curtailments; 2) Potential for large level of inventory
locked up in financing deals to remain so for quite some time yet.
Hindalco's growth plans — Hindalco is among the lowest-cost aluminium smelters
globally (capacity 500ktpa), well-integrated with captive power, bauxite and 30% of its
own coal. It plans to triple its smelter capacity to 1.6mtpa with matching alumina/power
of which 770ktpa (152% increase to 1.28mtpa) of smelter capacity will be completed by
end-CY12 and the rest by 2015. As its coal block remains uncertain, we assume hikes
in power costs, but Hindalco feels optimistic about approval to mine captive coal.
Risks — Lower margins/volumes; Rupee appreciation; lower import duties.
Hindalco Industries
Company description
In India, Hindalco is a low-cost integrated aluminum producer (capacity ~500,000
tpa) with access to captive power and bauxite. It has a copper smelting capacity of
500,000 tpa. In aluminum it has a strong domestic market share with a dominant
share in sheet products. Hindalco plans to triple its alumina and aluminum capacity
by 2015 in stages, with projects such as Utkal Alumina (Orissa), Aditya Aluminium
(Orissa) and Mahan (Madhya Pradesh) expected to be completed by end-CY12 and
increasing aluminium smelter capacity by 152% to 1.28m tpa. On 15 May 2007,
Hindalco acquired Novelis, the world's leading aluminium rolled products producer
(FY10 sales of 2.85m tonnes), and a leader in the can sheet market. Novelis' key
markets are North America and Europe (~70% of FY10 shipments) with the rest
sold in Asia and South America. Beverage and food cans are the biggest end-use
market for Novelis, accounting for more than 50% of volumes.
Investment strategy
We rate Hindalco Buy/Medium Risk (1M). Aluminium is one of our preferred metal
and we expect it to trade around US$2,600/t through 2013. Two key issues will
determine the outlook: (1) Power cuts in China to lead to closure of old capacity and
production curtailments; (2) Potential for large level of inventory locked up in
financing deals to remain so for quite some time yet. Additionally, copper TC/RCs
should be higher in FY12 and FY13 at ~US15c/lb relative to margins in FY11.
Contributing factors appear to be reduced copper smelter capability and reduced
copper concentrate demand in China. Hindalco’s growth in earnings in the next 4-5
years will be driven by low cost, fully integrated aluminium capacity being set up in
India. Novelis has performed well in the first nine months of FY11 with EBITDA/t
ranging from US$317-378. Based on this trend, Novelis should easily meet
management target of its adj. EBITDA exceeding $1bn. We estimate adj. EBITDA of
US$1.1bn in FY12. Management expects to see robust demand in most of its
markets and product segments. It sees firm demand in Asia/South America (~30%
of volumes) and moderate growth in North America/Europe. Can sheets (more than
50% of volumes) continue to be a very strong sector. Novelis’ recent debt
restructuring gives it flexibility to fund its own and the group’s capex plans – it
recently returned US$1.7bn to Hindalco. Novelis’ capacity should grow by 3-4% pa
through FY14 (debottlenecking) and it has expansion plans in Brazil and Asia.
Valuation
Our target price of Rs268 is based on SOTP. To value Hindalco standalone we use
a P/E of 8.5x on Jun12 earnings, at the higher end of its trading range (6x to 10x)
over the past five years. We use P/E because stocks such as Hindalco are largely
driven by commodity price trends, which translate into earnings momentum. The
multiple appears justified given our outlook of improving aluminium prices and its
position as a low-cost domestic producer. We value Novelis and Hindalco's other
businesses at 7x EV/EBITDA and we estimate EBITDA/tonne of US$340 in FY12
and FY13. The valuation is at the upper end of average global multiples, which
range from 6x to 7x. We use EV/EBITDA (rather than P/E) because Novelis has a
high level of debt. At our target price, Hindalco would trade at a consolidated FY12
EV/EBITDA of 7.6x and P/E of 12.8x.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindalco Industries (HALC.BO)
Global Update: Remain Positive on Ally; Hindalco Top Pick
Our top metal pick in a challenging environment — Aluminium is our preferred
metal and should trade in around $2,600/t through 2013. In India, Hindalco’s aluminium
EBIT margins should be slightly better yoy in FY12 (with Hirakud stabilization, higher
prices/volumes); copper EBIT should gain from better TC/RCs and by-product sales.
Novelis offers stable margins (we estimate EBITDA of $1.1bn in FY12). Hindalco also
offers strong volume growth as aluminium capacity should rise 152% to 1.28m tpa by
end-CY12 (though coal availability remains a risk for the Mahan smelter in M.P.)
Revising TP, maintain Buy — Our global aluminium prices have been raised by ~5%
taking into account our updated commodity/economic views, recent price trends and
raw material costs. Our cons PAT rises by 3% in FY12 and 2% in FY13 vs previous
forecasts. We continue to value Hindalco standalone at 8.5x PE but roll forward to
Jun12 (from Mar12) & other businesses at 7x EV/EBITDA (vs. 7.5x due to a decline in
global multiples). Hindalco’s standalone value accounts for Rs121 (of Rs268) vs Rs119
(of Rs269) earlier. At our TP, it would trade at 7.6x FY12 EV/EBITDA and 12.8x PE.
Upside triggers: further LME gains and/or Mahan coal block approval.
Aluminium: preferred metal — Key issues: 1) Power cuts in China to lead to closure
of old capacity and production curtailments; 2) Potential for large level of inventory
locked up in financing deals to remain so for quite some time yet.
Hindalco's growth plans — Hindalco is among the lowest-cost aluminium smelters
globally (capacity 500ktpa), well-integrated with captive power, bauxite and 30% of its
own coal. It plans to triple its smelter capacity to 1.6mtpa with matching alumina/power
of which 770ktpa (152% increase to 1.28mtpa) of smelter capacity will be completed by
end-CY12 and the rest by 2015. As its coal block remains uncertain, we assume hikes
in power costs, but Hindalco feels optimistic about approval to mine captive coal.
Risks — Lower margins/volumes; Rupee appreciation; lower import duties.
Hindalco Industries
Company description
In India, Hindalco is a low-cost integrated aluminum producer (capacity ~500,000
tpa) with access to captive power and bauxite. It has a copper smelting capacity of
500,000 tpa. In aluminum it has a strong domestic market share with a dominant
share in sheet products. Hindalco plans to triple its alumina and aluminum capacity
by 2015 in stages, with projects such as Utkal Alumina (Orissa), Aditya Aluminium
(Orissa) and Mahan (Madhya Pradesh) expected to be completed by end-CY12 and
increasing aluminium smelter capacity by 152% to 1.28m tpa. On 15 May 2007,
Hindalco acquired Novelis, the world's leading aluminium rolled products producer
(FY10 sales of 2.85m tonnes), and a leader in the can sheet market. Novelis' key
markets are North America and Europe (~70% of FY10 shipments) with the rest
sold in Asia and South America. Beverage and food cans are the biggest end-use
market for Novelis, accounting for more than 50% of volumes.
Investment strategy
We rate Hindalco Buy/Medium Risk (1M). Aluminium is one of our preferred metal
and we expect it to trade around US$2,600/t through 2013. Two key issues will
determine the outlook: (1) Power cuts in China to lead to closure of old capacity and
production curtailments; (2) Potential for large level of inventory locked up in
financing deals to remain so for quite some time yet. Additionally, copper TC/RCs
should be higher in FY12 and FY13 at ~US15c/lb relative to margins in FY11.
Contributing factors appear to be reduced copper smelter capability and reduced
copper concentrate demand in China. Hindalco’s growth in earnings in the next 4-5
years will be driven by low cost, fully integrated aluminium capacity being set up in
India. Novelis has performed well in the first nine months of FY11 with EBITDA/t
ranging from US$317-378. Based on this trend, Novelis should easily meet
management target of its adj. EBITDA exceeding $1bn. We estimate adj. EBITDA of
US$1.1bn in FY12. Management expects to see robust demand in most of its
markets and product segments. It sees firm demand in Asia/South America (~30%
of volumes) and moderate growth in North America/Europe. Can sheets (more than
50% of volumes) continue to be a very strong sector. Novelis’ recent debt
restructuring gives it flexibility to fund its own and the group’s capex plans – it
recently returned US$1.7bn to Hindalco. Novelis’ capacity should grow by 3-4% pa
through FY14 (debottlenecking) and it has expansion plans in Brazil and Asia.
Valuation
Our target price of Rs268 is based on SOTP. To value Hindalco standalone we use
a P/E of 8.5x on Jun12 earnings, at the higher end of its trading range (6x to 10x)
over the past five years. We use P/E because stocks such as Hindalco are largely
driven by commodity price trends, which translate into earnings momentum. The
multiple appears justified given our outlook of improving aluminium prices and its
position as a low-cost domestic producer. We value Novelis and Hindalco's other
businesses at 7x EV/EBITDA and we estimate EBITDA/tonne of US$340 in FY12
and FY13. The valuation is at the upper end of average global multiples, which
range from 6x to 7x. We use EV/EBITDA (rather than P/E) because Novelis has a
high level of debt. At our target price, Hindalco would trade at a consolidated FY12
EV/EBITDA of 7.6x and P/E of 12.8x.
No comments:
Post a Comment