MOSL: HINDALCO (Buy)-GST impacts sales, but cost of production stable-40% upside

​Hindalco: GST impacts sales, but cost of production stable; 40% upside; reiterate BUY

(HNDL IN, Mkt Cap USD7.5b, CMP INR221, TP INR309, 40% Upside, Buy)

• Hindalco's (HNDL) standalone (S/A) 1QFY18 EBITDA grew 1% YoY to INR11.5b, lower than our estimate of INR12b. Inventory accumulation and lower revenue from copper byproducts account for the 5% miss. Finance cost declined 10% QoQ, as the company repaid INR45b in 4QFY17. Adjusted PAT increased 41% YoY to INR4.2b. Utkal Alumina's EBITDA grew 206% YoY to INR2.9b.

Copper: Weak quarter on lower TcRc and lower byproduct prices

• Production was strong at 109kt (-2% QoQ), but sales were lower at 105kt.
• -EBITDA per lb declined 27% QoQ due to lower DAP revenue.

Aluminum: Margins in-line, but sales impacted due to GST rollout

• Production was strong at 321kt (+1% QoQ), but sales declined 9% QoQ due to increase in inventories. Alumina production too increased 2% QoQ.
• EBITDA increased 2% YoY to INR8.3b, largely driven by volumes. The benefit of 22% increase in LME was eroded by increase in alumina prices (captured in Utkal), currency appreciation, and hedging losses.
• Including Utkal, the EBITDA/t increased 25% YoY USD579/t. Cost of production is expected to remain stable on benefit from new linkages.