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Hindalco Industries
Neutral
HALC.BO, HNDL IN
Operating earnings in line; PAT beat driven by sharply
lower tax rate; Update on projects with consol
earnings
• Standalone results -Operating earnings in line; PAT beat driven by
sharply higher other income, lower tax rate: Hindalco (HNDL) reported
4Q FY11 standalone EBITDA of Rs8.73B (excluding the Rs410MM FX
gain from the Novelis transaction), in line with BBG consensus and JPM
estimates of Rs8.56B. EBITDA for the quarter was up 9% y/y and 24% q/q
(3Q included one-time costs from production disruption at its smelter). While
performance in the aluminium segment was in line with our expectation,
the copper segment reported strong results driven by higher by-product
credits (sulfuric acid prices, in our view). Reported PAT in 4Q FY11 of
Rs7.1B (+7% y/y; +54% q/q) was sharply ahead of JPMe of Rs5.8B and
consensus of Rs5.9B with a lower-than-expected tax rate (10% vs. JPMe of
20%) and higher other income (+35% y/y; +73% q/q). Given that 4Q is the
last quarter of the year, tax adjustments are normal (the 4Q FY10 tax rate
stood at 1.4%), and hence we believe the EBITDA numbers are more relevant.
• High coal costs not yet reflected in financials: While primary metal
production in the quarter of 138.7kt was below the 1Q FY11 level of 140kt,
the strong LME prices (LME Aluminum +3% q/q) helped improve blended
realizations by 10% q/q, in our view. Furthermore, in contrast to the weak
demand commentary in 3Q, the company highlighted that the domestic
aluminium industry witnessed ‘a good demand growth in 4Q FY11’. Blended
Aluminum realizations were higher than our estimate (~3%). While the
company has talked about high coal costs, we would highlight that
‘manufacturing costs’ were up only 6% q/q (even as aluminum production
increased 2% q/q). We believe the full impact of higher coal prices
(particularly from Coal India) is yet to be reflected in the financials.
Aluminum PBIT stood at Rs5.6B, +21% q/q, compared to our estimate of
Rs5.55B.
• Copper – by-product prices buoy earnings: Copper results were better than
expected (PBIT at Rs2.1B vs. JPMe of Rs1.9B) despite high energy costs and
lower Tc/Rc as it benefited from higher by-product credits. We believe copper
smelting earnings will remain strong over the next two quarters given recent
elevated Tc-Rcs.
• Rs65B in capex on Greenfield projects; detailed review with consolidated
results: HNDL indicated capex of Rs65B on Greenfield projects but did not
give project-wise spending (key to gauge progress of Utkal Alumina project).
The company in its press release also indicated that a ‘detailed review of the
projects across geographies would be published with the consolidated results
at a later date’. While we wait for the consolidated results, we believe the key
re-rating catalyst remains the Utkal Alumina project (please refer to our note
Recent correction makes stock interesting, but no near term catalysts in sight,
dated 14th April 2011).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindalco Industries
Neutral
HALC.BO, HNDL IN
Operating earnings in line; PAT beat driven by sharply
lower tax rate; Update on projects with consol
earnings
• Standalone results -Operating earnings in line; PAT beat driven by
sharply higher other income, lower tax rate: Hindalco (HNDL) reported
4Q FY11 standalone EBITDA of Rs8.73B (excluding the Rs410MM FX
gain from the Novelis transaction), in line with BBG consensus and JPM
estimates of Rs8.56B. EBITDA for the quarter was up 9% y/y and 24% q/q
(3Q included one-time costs from production disruption at its smelter). While
performance in the aluminium segment was in line with our expectation,
the copper segment reported strong results driven by higher by-product
credits (sulfuric acid prices, in our view). Reported PAT in 4Q FY11 of
Rs7.1B (+7% y/y; +54% q/q) was sharply ahead of JPMe of Rs5.8B and
consensus of Rs5.9B with a lower-than-expected tax rate (10% vs. JPMe of
20%) and higher other income (+35% y/y; +73% q/q). Given that 4Q is the
last quarter of the year, tax adjustments are normal (the 4Q FY10 tax rate
stood at 1.4%), and hence we believe the EBITDA numbers are more relevant.
• High coal costs not yet reflected in financials: While primary metal
production in the quarter of 138.7kt was below the 1Q FY11 level of 140kt,
the strong LME prices (LME Aluminum +3% q/q) helped improve blended
realizations by 10% q/q, in our view. Furthermore, in contrast to the weak
demand commentary in 3Q, the company highlighted that the domestic
aluminium industry witnessed ‘a good demand growth in 4Q FY11’. Blended
Aluminum realizations were higher than our estimate (~3%). While the
company has talked about high coal costs, we would highlight that
‘manufacturing costs’ were up only 6% q/q (even as aluminum production
increased 2% q/q). We believe the full impact of higher coal prices
(particularly from Coal India) is yet to be reflected in the financials.
Aluminum PBIT stood at Rs5.6B, +21% q/q, compared to our estimate of
Rs5.55B.
• Copper – by-product prices buoy earnings: Copper results were better than
expected (PBIT at Rs2.1B vs. JPMe of Rs1.9B) despite high energy costs and
lower Tc/Rc as it benefited from higher by-product credits. We believe copper
smelting earnings will remain strong over the next two quarters given recent
elevated Tc-Rcs.
• Rs65B in capex on Greenfield projects; detailed review with consolidated
results: HNDL indicated capex of Rs65B on Greenfield projects but did not
give project-wise spending (key to gauge progress of Utkal Alumina project).
The company in its press release also indicated that a ‘detailed review of the
projects across geographies would be published with the consolidated results
at a later date’. While we wait for the consolidated results, we believe the key
re-rating catalyst remains the Utkal Alumina project (please refer to our note
Recent correction makes stock interesting, but no near term catalysts in sight,
dated 14th April 2011).
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