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Hindalco's wholly owned subsidiary Novelis was off to a solid start to FY12, reporting adj. EBITDA
of US$306mn. Ebitda/t at US$399/t were the highest ever driven by flexible contract model
initiated a few quarters ago. We have a Buy on Hindalco with TP of Rs277.
Strong pricing drive ebitda 16% higher yoy to US$306mn (11% above exp)
Hindalco's wholly owned subsidiary Novelis reported strong 1QFY12 results. Shipments were
at 767kt (+3% yoy and flat qoq) in-line with expectations. Driven by higher aluminium prices
and rolling premiums, average realization was US$4059/t (+20% yoy and +6% qoq). Net
revenues were at US$3.1bn (+23% yoy and +5% qoq). Despite flattish volumes qoq, SG&A
expenses declined 8%. Driven by higher premiums and cost containment, adj. EBITDA was a
record US$306mn (+16% yoy and +9% qoq), 11% over our estimate of US$275mn. Interest
expense expectedly high at US$77mn, post the debt refinancing. Tax rate however was 43%,
dragging net income to US$62mn (+24% yoy and qoq).
Cashflows from operating activities were at -$115mn compared to US$22mn last year and
was impacted by a significant increase in accounts payable and inventories. Management reiterated
that cashflows from operations would turn positive during the remainder part of the
year and have targeted to generate free cash before capex of US$600-700mn.
During the quarter there was a slowdown in demand for electrical products and as a result,
product lines were shifted towards can sheets in Asia. The Brazilian market volumes were
impacted by adverse weather conditions. Nonetheless overall market buoyancy remained
strong resulting in strong margins.
Reiterates EBITDA guidance of US$1.15-1.2bn for FY12F
The company reiterated its guidance for adj. EBITDA of US$1.15-1.2bn and free cash flow
before capex of US$600-700mn for FY12F.
Aggressive capex target of US$550-600mn to be back-end weighted
Net cash flow is likely to be negligible with capex of US$550-600mn planned for the year. This
will include strategic investments of US$410-460mn and maintenance investments of
US$140mn. The capex is expected to be back-end weighted. It was US$67mn in 1QFY12.
Pinda expansion on track to add 220kt capacity by end CY12
The company is on-track to add 220kt of capacity by end CY12 through the Pinda expansion
in Brazil. The 350kt South Korea mill expansion is expected to be complete by end CY13
while the North American strategic automotive expansion will add 200kt of volumes by mid
2013.
Less than 20% of volumes are of commodity-type
Management highlighted that they expect overall demand driven by Asia and South America
to be robust in the future despite risk of demand destruction in the developed economies. The
company has moved into the premium end of aluminium flat rolled products over the last few
years with only about 15-20% of volumes out of the total mix, being of commodity-type nature.
Hindalco valuations attractive; Maintain Buy
Trading at 7.9x/7.1x FY12/13F earnings and 6.5x/6.2x FY12/13F EV/EBITDA, we believe
valuations are attractive. Even ignoring the robust expansion pipeline in aluminium, the
existing businesses are available at a discount, in our view. We have a Buy rating on
Hindalco with TP of Rs277. Hindalco is expected to report its standalone results on August
12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindalco's wholly owned subsidiary Novelis was off to a solid start to FY12, reporting adj. EBITDA
of US$306mn. Ebitda/t at US$399/t were the highest ever driven by flexible contract model
initiated a few quarters ago. We have a Buy on Hindalco with TP of Rs277.
Strong pricing drive ebitda 16% higher yoy to US$306mn (11% above exp)
Hindalco's wholly owned subsidiary Novelis reported strong 1QFY12 results. Shipments were
at 767kt (+3% yoy and flat qoq) in-line with expectations. Driven by higher aluminium prices
and rolling premiums, average realization was US$4059/t (+20% yoy and +6% qoq). Net
revenues were at US$3.1bn (+23% yoy and +5% qoq). Despite flattish volumes qoq, SG&A
expenses declined 8%. Driven by higher premiums and cost containment, adj. EBITDA was a
record US$306mn (+16% yoy and +9% qoq), 11% over our estimate of US$275mn. Interest
expense expectedly high at US$77mn, post the debt refinancing. Tax rate however was 43%,
dragging net income to US$62mn (+24% yoy and qoq).
Cashflows from operating activities were at -$115mn compared to US$22mn last year and
was impacted by a significant increase in accounts payable and inventories. Management reiterated
that cashflows from operations would turn positive during the remainder part of the
year and have targeted to generate free cash before capex of US$600-700mn.
During the quarter there was a slowdown in demand for electrical products and as a result,
product lines were shifted towards can sheets in Asia. The Brazilian market volumes were
impacted by adverse weather conditions. Nonetheless overall market buoyancy remained
strong resulting in strong margins.
Reiterates EBITDA guidance of US$1.15-1.2bn for FY12F
The company reiterated its guidance for adj. EBITDA of US$1.15-1.2bn and free cash flow
before capex of US$600-700mn for FY12F.
Aggressive capex target of US$550-600mn to be back-end weighted
Net cash flow is likely to be negligible with capex of US$550-600mn planned for the year. This
will include strategic investments of US$410-460mn and maintenance investments of
US$140mn. The capex is expected to be back-end weighted. It was US$67mn in 1QFY12.
Pinda expansion on track to add 220kt capacity by end CY12
The company is on-track to add 220kt of capacity by end CY12 through the Pinda expansion
in Brazil. The 350kt South Korea mill expansion is expected to be complete by end CY13
while the North American strategic automotive expansion will add 200kt of volumes by mid
2013.
Less than 20% of volumes are of commodity-type
Management highlighted that they expect overall demand driven by Asia and South America
to be robust in the future despite risk of demand destruction in the developed economies. The
company has moved into the premium end of aluminium flat rolled products over the last few
years with only about 15-20% of volumes out of the total mix, being of commodity-type nature.
Hindalco valuations attractive; Maintain Buy
Trading at 7.9x/7.1x FY12/13F earnings and 6.5x/6.2x FY12/13F EV/EBITDA, we believe
valuations are attractive. Even ignoring the robust expansion pipeline in aluminium, the
existing businesses are available at a discount, in our view. We have a Buy rating on
Hindalco with TP of Rs277. Hindalco is expected to report its standalone results on August
12.
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