MOSL: HINDALCO (Buy)-Annual Report Analysis-Strong FCF drives a sharp reduction in debt and interest cost
HINDALCO: Annual Report Analysis; Strong FCF drives a sharp reduction in debt and interest cost
(HNDL IN, Mkt Cap USD7.3b, CMP INR237, TP INR322, 36% Upside, Buy)
We analyzed Hindalco’s (HNDL) FY18 annual report. Key takeaways:
- Revenue increased 15% in FY18, driven by 2-8% volume growth across segments and a 21% increase in LME prices. Indian aluminum smelters witnessed a revenue loss of USD74/t due to hedging. Product premiums have stabilized, indicating there is no incremental pricing pressure in the Indian aluminum space.
- Cost of production (CoP) for aluminum smelters increased by USD224/t (Exhibit 4), largely driven by a rise in raw material cost and wage hikes. CoP of alumina at Utkal increased by USD16 to USD186/t, which is still most competitive in the world. Conversion cost for copper smelters was stable at USc21.6/lb.
- EBITDA increased 11% to INR138b (Exhibit 7), nearly 71% of which is insulated from volatility in LME (Exhibit 8). Novelis’ EBITDA grew 8%, equally driven by expansion in margins and volumes. Benefiting from coal and bauxite mining integration, aluminum EBITDA increased 20%, despite a hedging loss and an increase in CoP as LME prices increased 21%.
Hindalco Industries is engaged in the production and sale of aluminum and copper in India and internationally. Co.'s aluminum products include rolled products, extrusions, foils, primary aluminum ingots, billets, wire rods, and aluminum slabs; and aluminum chemicals, such as standard alumina, standard hydrate and specialty aluminas and hydrates for use in refractories, ceramics, fire retardant plastics, alum, and zeolite applications. Co. also offers aluminum foil and packaging solutions to pharmaceuticals, healthcare, dairy, confectionery, processed foods, personal products, and tobacco industries, as well as to the heat, ventilation, and air conditioning industries.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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