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UBS Investment Research
Hindalco Industries
Q 1 Operational results below estimates
Event: EBITDA below estimates; PAT higher due to other income
EBITDA was Rs8.2bn, (-2%QoQ, +2%YoY) vs UBS-e/consensus of Rs8.6bn/
Rs8.9bn. Pre-ex Net Profit of Rs6.44bn (-9%QoQ, +21%YoY), vs UBSe/
consensus Rs6.16bn/Rs6.15bn. Revenues came in at Rs59.8bn, (-12%QoQ,
+16%YoY), vs UBS-e/consensus of Rs68.6bn/Rs67bn. PAT was higher compared
to estimates driven by higher other income (Rs2.3bn vs UBS-e Rs1.5bn).
Impact: Lower Copper volumes caused the revenue miss
Operational results & net sales were below estimates driven by lower than
expected copper production in the quarter (shutdown in Dahej - smelter back in
operation from July 2011) - Hindalco's copper business is a low margin business
(4% EBIT margin vs 29% for Aluminium) - they earn just Tc/Rc spreads. Hence,
impact on standalone EBITDA is not much when compared to the impact on
topline.
Action: Stock attractive post correction; Stable Novelis cushions earnings
We like Hindalco due to its: 1) Less risky conversion business model at Novelis—
expect stable US$1.2bn (from FY12E) in EBITDA (54% of consolidated). 2)
Exposure to emerging market growth via its domestic expansion. 3) We expect
ROEs to rise to 14-16% by FY12-13E from 11%.
Valuation: Maintain Buy rating, with price target of Rs240.00
We base our price target of Rs240.00 on a sum-of-the-parts valuation. We value
Hindalco’s Indian business at 5.5x FY13E EBITDA, Novelis at 6.5x FY13E
EBITDA, and listed subsidiaries/investments at a 20% discount to market price.
Hindalco Industries
Hindalco is the largest non-ferrous metal producer in India and is
focused on the production of aluminium and copper. It produces
345,000tpa of integrated aluminium and 660,000tpa of alumina. Its
downstream products include rolled, aluminium foil, wire rods and
alloy wheels. Hindalco plans to expand its copper smelter production
from 180,000 to 250,000tpa. It recently acquired two copper mines,
which could meet up to one-third of its concentrate requirements.
Hindalco's 97%-owned subsidiary Indal produces 110,000tpa of
aluminium and 401,000tpa of alumina/alumina hydrate.
Statement of Risk
A sharp fall in global prices for aluminium, which in turn, is linked to
the recovery of the global economy, as well as continuing strong
Chinese imports, is the key risk factor for Indian aluminium
companies
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Hindalco Industries
Q 1 Operational results below estimates
Event: EBITDA below estimates; PAT higher due to other income
EBITDA was Rs8.2bn, (-2%QoQ, +2%YoY) vs UBS-e/consensus of Rs8.6bn/
Rs8.9bn. Pre-ex Net Profit of Rs6.44bn (-9%QoQ, +21%YoY), vs UBSe/
consensus Rs6.16bn/Rs6.15bn. Revenues came in at Rs59.8bn, (-12%QoQ,
+16%YoY), vs UBS-e/consensus of Rs68.6bn/Rs67bn. PAT was higher compared
to estimates driven by higher other income (Rs2.3bn vs UBS-e Rs1.5bn).
Impact: Lower Copper volumes caused the revenue miss
Operational results & net sales were below estimates driven by lower than
expected copper production in the quarter (shutdown in Dahej - smelter back in
operation from July 2011) - Hindalco's copper business is a low margin business
(4% EBIT margin vs 29% for Aluminium) - they earn just Tc/Rc spreads. Hence,
impact on standalone EBITDA is not much when compared to the impact on
topline.
Action: Stock attractive post correction; Stable Novelis cushions earnings
We like Hindalco due to its: 1) Less risky conversion business model at Novelis—
expect stable US$1.2bn (from FY12E) in EBITDA (54% of consolidated). 2)
Exposure to emerging market growth via its domestic expansion. 3) We expect
ROEs to rise to 14-16% by FY12-13E from 11%.
Valuation: Maintain Buy rating, with price target of Rs240.00
We base our price target of Rs240.00 on a sum-of-the-parts valuation. We value
Hindalco’s Indian business at 5.5x FY13E EBITDA, Novelis at 6.5x FY13E
EBITDA, and listed subsidiaries/investments at a 20% discount to market price.
Hindalco Industries
Hindalco is the largest non-ferrous metal producer in India and is
focused on the production of aluminium and copper. It produces
345,000tpa of integrated aluminium and 660,000tpa of alumina. Its
downstream products include rolled, aluminium foil, wire rods and
alloy wheels. Hindalco plans to expand its copper smelter production
from 180,000 to 250,000tpa. It recently acquired two copper mines,
which could meet up to one-third of its concentrate requirements.
Hindalco's 97%-owned subsidiary Indal produces 110,000tpa of
aluminium and 401,000tpa of alumina/alumina hydrate.
Statement of Risk
A sharp fall in global prices for aluminium, which in turn, is linked to
the recovery of the global economy, as well as continuing strong
Chinese imports, is the key risk factor for Indian aluminium
companies
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