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Hindalco Inds. (HNDL) - Qtr. Update - Dtd. - February 13, 2013




Axis Capital Limited


13 Feb 2013





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Novelis’ (international subsidiary of Hindalco) Q3 adj. EBITDA declined 13% YoY to USD 185 mn, while volumes were flat YoY at 650 kt. EBITDA/ton was at USD 270, down 15% YoY. The company was impacted by additional costs (USD 20 mn) and lost volumes due to implementation of ERP during the quarter. According to the company, operations have normalized currently and no significant ERP related costs are expected again. Hindalco’s standalone Q3 results were in line with expectations. EBITDA was at Rs 5.8 bn (down 19% YoY and up 13% QoQ) vs. our estimate of Rs 6 bn. Aluminium EBIT rose 22% QoQ to Rs 2.1 bn led by normalization in coal availability (coal availability was impacted in Q2 due to floods). Copper EBIT rose 8% to Rs 2.3 bn led by 8% improvement in volumes (84 kt). Domestic expansion We expect Mahan Aluminium (smelter) to be commissioned in FY14 and have assumed volumes of 90kt and 215 kt in FY14 and FY15 respectively. International expansion Novelis commissioned its cold mill expansion in Brazil (220 kt) during the quarter, thus increasing its overall capacity by ~7%. This along with the expansion in Korea (350 kt) by end of CY13 will drive volume growth. Our volume estimates are 3.1 mnt for FY14 and 3.4 mnt for FY15. Lower EPS estimates; maintain HOLD We lower our EPS estimates for FY13 and FY14 by 6% each to Rs 13.8 and 13.5 respectively, mainly to factor in lower EBITDA/ton estimate at Novelis (USD 325 vs. USD 350 earlier). We also roll forward our valuation to FY15 with SOTP-based target price of Rs 118, which implies 5% upside from CMP of Rs 113. Regards, Jagdishwar Toppo (Executive Director – Materials) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1103 Nitesh Jain (Sr VP – Materials) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1145 Sujan Sanisetty (Asst VP – Materials) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1122

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