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February 9, 2012
Hindalco
Performance highlights
NEUTRAL
CMP Target Price
Novelis (US $mn) yoy % 11.4 (3.3) (165)bp (1.9) 3QFY12 2,880 213 7.4 (12) 3QFY11 2,560 225 (46) yoy % 12.5 (5.3) -
`159 -
Standalone (` cr) Particulars Net sales EBITDA* % margin Adj. PAT 3QFY12 6,590 716 10.9 452 3QFY11 5,918 740 12.5 460
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
8.8 (139)bp
Base Metals 30,393 1.4 225/111 1,253,457 1 17,831 5,412 HALC.BO HNDL@IN
For 3QFY2012, Hindalcos standalone profit declined by 1.9% yoy while Novelis reported a net loss of US$12mn. We recommend Neutral on the stock. Aluminium segment drags standalone profits: Hindalcos standalone net sales increased by 11.4% yoy to `6,590cr mainly on account of higher volumes in both, aluminium and copper segments. However, aluminium segment EBIT decreased by 33.4% yoy to `310cr due to increase in input costs (mainly coal and crude derivatives). Nevertheless, copper segment EBIT rose by 51.1% yoy to `216cr due to higher treatment and refining charges and by-product credits. Overall, Hindalcos EBITDA decreased by 3.3% yoy to `716cr. Net profit decreased by 1.9% yoy to `452cr. Low demand in Europe dents Novelis performance: Novelis net sales decreased by 4.0% yoy to US$2.5bn due to decrease in volumes as well as aluminium price. Shipments of aluminum rolled products decreased 9.2% yoy to 682kt primarily due to destocking in Europe. Adjusted EBITDA decreased by 10.5% yoy to US$213mn on account of higher costs and lower volumes. Novelis reported a net loss of US$12mn during 3QFY2012 compared to a loss of US$46mn in 3QFY2011. Outlook and valuation: Hindalco is expanding its capacity three-fold over the next four years. However, there is lack of clarity over production from Mahan coal block on account of environmental issues. Without captive coal block, the upcoming Mahan smelter (expected to commission in 1QFY2013) is expected to face cost pressures. Further, lower aluminium prices and higher costs are expected to result in decline in FY2013 PAT by 3.8%. Hence, we recommend Neutral on the stock.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 32.1 15.5 34.7 17.8
3m 2.7
1yr 1.4
18.0 (27.7)
FY2010
60,563 (7.4) 3,925 708.9 20.4 16.1 7.8 1.4 20.9 14.0 0.7 4.2
FY2011
71,801 18.6 2,456 (37.4) 12.8 11.1 12.4 1.0 9.7 9.2 0.6 5.6
FY2012E
78,421 9.2 3,133 27.6 16.4 10.0 9.7 1.0 10.3 7.4 0.6 5.9
FY2013E
81,515 3.9 3,015 (3.8) 15.8 9.9 10.1 0.9 9.1 6.8 0.6 6.1
Bhavesh Chauhan
Tel: 022- 3935 7800 Ext: 6821 bhaveshu.chauhan@angelbroking.com
3QFY12 6,590 4,397 66.7 738 11.2 304 4.6 493 7.5 5,932 90.0 57 716 10.9 79 175 90 552 8.4 100 18.2 452
3QFY11 5,918 3,989 67.4 551 9.3 251 4.2 443 7.5 5,234 88.5 57 740 12.5 52 171 61 578 9.8 118 20.4 460
yoy % 11.4 10.2 34.1 20.9 11.3 13.3 58.3 (3.3) 53.8 2.4 48.6 (4.6) (15.2) (1.9)
2QFY12 6,220 4,103 66.0 753 12.1 292 4.7 455 7.3 5,603 90.1 51 669 10.8 68 174 176 604 9.7 101 16.8 503
qoq % 5.9 7.2 (1.9) 4.3 8.3 5.9 10.4 7.0 17.5 0.4 (48.9) (8.6) (0.9) (10.1)
February 9, 2012
Segmental performance
Copper cathode and CC rods production grew by 9.4% and 42.3% yoy to 88k and 38k, respectively.
In aluminium segment alumina, aluminium, wire rods and flat products production increased by 7.1%, 7.8%, 6.7% and 20.4% yoy to 343k, 146k, 25k and 56k, respectively.
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3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 yoy % qoq % 1,977 4,000 5,977 (2) 5,975 465 143 608 23.5 3.6 2,211 4,637 6,848 (2) 6,846 562 206 768 25.4 4.4 2,093 3,940 6,033 (2) 6,031 599 145 744 28.6 3.7 2,213 4,062 6,275 (3) 6,272 429 148 576 19.4 3.6 2,236 4,418 6,654 6,647 216 13.1 10.5 11.3 11.3 51.1 1.0 8.8 6.0 6.0 46.3 (8.8) -
(7) 272.2 134.0 310 (33.4) (27.7) 526 (13.5) 13.9 4.9 -
The aluminium segments EBIT margin stood at 13.9% in 3QFY2012 compared to 23.5% in 3QFY2011. Aluminium segment EBIT decreased by 33.4% yoy to `310cr due to increase in input costs (mainly coal and crude derivatives). The copper segments EBIT margin stood at 4.9% in 3QFY2012 compared to 3.6% in 3QFY2011. Copper segment EBIT rose by 51.1% yoy to `216cr due to higher treatment and refining charges and by-product credits.
February 9, 2012
3QFY12 2,880 2,224 77.2 238 8.3 95 3.3 10 0.3 213 7.4 1 79 53 1.8 (1) 74 (63) (22) (0.8) (10) (12) (0.4) (12)
3QFY11 2,560 2,232 87.2 328 12.8 94 3.7 9 0.4 225 8.8 20 100 105 4.1 (16) 42 30 (74) 3 0.1 33 1,100.0 (30) (1.2) 5 11 (46)
% yoy 12.5 (0.4) (27.4) 1.1 11.1 (5.3) (95.0) (21.0) (49.5) (93.8) 76.2
2QFY12 2,880 2,549 88.5 331 11.5 91 3.2 12 0.4 228 7.9 11 81 136 4.7 4 14 -
% qoq 0.0 (12.8) (28.1) 4.4 (16.7) (6.6) (90.9) (2.5) (61.0)
428.6
February 9, 2012
Adjusted EBITDA decreased 10.5% yoy to US$213mn on account of higher costs and lower volumes. Also, EBITDA/tonne declined 1.0% yoy to US$312 during the quarter. Novelis reported a net loss of US$12mn during 3QFY2012 compared to a loss of US$46mn in 3QFY2011. The company is witnessing recovery in demand during 4QFY2012; it remains on track to achieve EBITDA of ~US$1bn during FY2012.
6 4 2 0
4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 (%)
(US $ mn)
(%)
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
(2) (4)
February 9, 2012
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
Adj. EBITDA
Source: Company, Angel Research
Investment rationale
Aluminium capacity to increase three folds in the next four years
Hindalco aims to increase its aluminium capacity by almost three-folds in the next four years to 1.5mn tonnes. Consequently, we expect production and sales volume to record significant growth over FY201114. Most of these new capacities will be backed by captive bauxite and coal mines; however, there is lack of clarity on production from Mahan coal block on account of environmental issues currently.
February 9, 2012
3QFY12
(US $/tonne)
(US $mn)
(ktpa)
213
(ktpa)
Mahan Aditya Jharkhand Total
Renukhoot Hirakood
February 9, 2012
(US $ mn)
950 900 850 FY10 FY11 EBITDA FY12E EBITDA margin FY13E
6 4 2 0
3,256 4,820
Angel forecast
16.4 15.8
Bloomberg consensus
16.4 17.0
February 9, 2012
(%)
1,000
(`cr)
80,000 60,000 40,000 20,000 0 Apr-06Nov-06Jun-07 Jan-08 Aug-08Mar-09Oct-09May-10Dec-10 Jul-11 Feb-12 2x 5x 8x 11x 14x
(`)
15x
25x
35x
200 150 100 50 0 Apr-06 Nov-06 Jun-07 Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 0.2x 0.7x 1.2x 1.7x
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10
Hindalco
Nalco
(16) 6 -
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Key ratios
Y/E March Valuation ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book value DuPont analysis EBIT margin Tax retention ratio (%) Asset turnover (x) RoIC (Post-tax) Cost of debt (post tax) Leverage (x) Operating RoE Returns (%) RoCE (Pre-tax) Angel RoIC (pre-tax) RoE Turnover ratios (x) Asset turnover (gross block) Inventory (days) Receivables (days) Payables (days) WC cycle (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest coverage
1.0 2.5 2.3 1.0 5.3 0.5 1.1 6.3 0.5 1.8 2.9 0.5 2.0 4.1 0.6 2.4 3.9 2.5 76 41 72 33 1.8 50 37 55 36 1.5 81 39 83 36 1.8 50 42 50 37 1.8 50 42 50 40 1.6 50 42 50 41 10.5 16.5 15.6 2.6 14.0 21.6 20.9 9.2 15.4 9.7 7.4 12.6 10.3 6.8 11.0 9.1 7.0 87.9 2.2 13.4 8.0 1.0 18.7 (0.1) 1.7 4.1 1.0 11.5 70.4 1.7 13.4 3.0 0.5 18.5 7.3 74.9 1.7 9.1 5.3 0.5 10.9 6.2 76.2 1.5 7.3 3.1 0.5 9.3 6.0 73.1 1.4 6.4 2.8 0.6 8.3 20.1 19.1 39.1 1.9 140.3 2.8 2.5 20.3 1.4 93.2 22.1 20.4 35.0 1.4 112.6 12.8 12.8 27.2 1.4 151.7 16.4 16.4 31.6 1.4 166.6 15.8 15.8 32.2 1.4 181.0 8.3 4.1 1.1 1.2 0.6 5.5 1.4 63.9 7.8 1.7 0.9 0.7 14.3 1.6 7.8 4.5 1.4 0.9 0.7 4.2 1.7 12.4 5.8 1.0 0.9 0.6 5.6 1.9 9.7 5.0 1.0 0.9 0.6 5.9 1.6 10.1 4.9 0.9 0.9 0.6 6.1 1.4 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E
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E-mail: research@angeltrade.com
Website: www.angeltrade.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Hindalco No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) :
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