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Hindalco Industries
Novelis – provides stability
Event
Strong results for 1QFY12: Hindalco’s subsidiary, Novelis, reported results,
which were in line with our estimates. Management has guided for adjusted
EBITDA of US$1.15-$1.2bn for FY12, ahead of our estimate. In the current
environment, Novelis’ business is much more defensive and adds a measure
of stability to Hindalco’s earnings. Maintain Outperform.
Impact
Earnings momentum continues: Net sales of $3.1bn in 1Q FY12 were up
23% YoY, driven by a 3% increase in shipments and 20% in realisation.
Adjusted EBITDA of $306mn was up 16% YoY driven by price and product
mix. PAT at $62mn was up 24% YoY despite a higher tax rate.
EBITDA guidance higher than our estimate: We are building in adjusted
EBITDA of US$1.07mn driven by EBITDA/t of US$349 for FY12. Novelis
reported EBITDA/t of US$399 for the current quarter and has given a
guidance of US$1.15-1.2bn.
Muted impact of market conditions: Novelis is already operating at full
capacity. Also, given that 60% of its supplies are to “can sheet” which is very
defensive, we see no major issue in Novelis selling its full production. Only
15-20% of its product mix is commodity grade and that helps maintain high
margins on the rest of the high-value products.
Capacity expansion remains on track: Novelis’ capex plans remain on
track and the company expects to spend $1.5bn in the next few years to
increase capacity close to 4,000kt. In addition to its Greenfield projects in
Brazil (220kt), South Korea expansion (400kt) and North America expansion
(200kt), it also is de-bottlenecking the existing units by 300kt at a very
reasonable capex of US$100mn or so over the next 3-4 years.
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs270.00 based on a PER methodology.
Catalyst: Price increases by Novelis and strength in Aluminium prices
Action and recommendation
Maintain Outperform: We view Hindalco as the best aluminium play in the
region. Stable earnings from Novelis (which contributes 60% of earnings),
provides a good base, while its low-cost Indian operations provide leverage to
aluminium prices. Maintain Outperform.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindalco Industries
Novelis – provides stability
Event
Strong results for 1QFY12: Hindalco’s subsidiary, Novelis, reported results,
which were in line with our estimates. Management has guided for adjusted
EBITDA of US$1.15-$1.2bn for FY12, ahead of our estimate. In the current
environment, Novelis’ business is much more defensive and adds a measure
of stability to Hindalco’s earnings. Maintain Outperform.
Impact
Earnings momentum continues: Net sales of $3.1bn in 1Q FY12 were up
23% YoY, driven by a 3% increase in shipments and 20% in realisation.
Adjusted EBITDA of $306mn was up 16% YoY driven by price and product
mix. PAT at $62mn was up 24% YoY despite a higher tax rate.
EBITDA guidance higher than our estimate: We are building in adjusted
EBITDA of US$1.07mn driven by EBITDA/t of US$349 for FY12. Novelis
reported EBITDA/t of US$399 for the current quarter and has given a
guidance of US$1.15-1.2bn.
Muted impact of market conditions: Novelis is already operating at full
capacity. Also, given that 60% of its supplies are to “can sheet” which is very
defensive, we see no major issue in Novelis selling its full production. Only
15-20% of its product mix is commodity grade and that helps maintain high
margins on the rest of the high-value products.
Capacity expansion remains on track: Novelis’ capex plans remain on
track and the company expects to spend $1.5bn in the next few years to
increase capacity close to 4,000kt. In addition to its Greenfield projects in
Brazil (220kt), South Korea expansion (400kt) and North America expansion
(200kt), it also is de-bottlenecking the existing units by 300kt at a very
reasonable capex of US$100mn or so over the next 3-4 years.
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs270.00 based on a PER methodology.
Catalyst: Price increases by Novelis and strength in Aluminium prices
Action and recommendation
Maintain Outperform: We view Hindalco as the best aluminium play in the
region. Stable earnings from Novelis (which contributes 60% of earnings),
provides a good base, while its low-cost Indian operations provide leverage to
aluminium prices. Maintain Outperform.
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