MOSL: HINDALCO (Buy)-Margin expansion in aluminum drives beat-FCF generation to continue
Hindalco: Margin expansion in aluminum drives beat; FCF generation to continue even after Capex step up on high IRR projects
(HNDl IN, Mkt Cap USD7.9b, CMP INR240, TP INR371, 55% Upside, Buy)
Hindalco standalone (S/A) EBITDA of INR12.6b (-4% QoQ) was 17% higher than estimate due to higher realization and lower-than-expected increase in cost in aluminum. EBITDA including Utkal increased 3% QoQ to INR16b, ahead of est. of INR15.2b on expansion in margin in aluminum. S/A PAT was down 22% QoQ to INR3.8b (est. INR2.7b) on lower other income and higher depreciation.
- Aluminum EBITDA (incl. Utkal) increased 9% QoQ to INR12.7b (est. INR11.7b). EBITDA per ton increased 11% QoQ to USD615/t.
- Copper EBITDA declined 16% QoQ to INR3.3b (est. INR3.5b) as the base was lifted by hedge accounting. Sales increased 6% QoQ to 108kt (est. 95kt).
- For FY18, consolidated EBITDA and adj. PAT increased 11% to INR138b and 120% YoY to INR42.1b respectively. Net debt reduced by INR42b YoY to INR423b, primarily at Novelis.
Focus on high IRR projects; FCF generation to continue; Maintain Buy
- Aluminum CoP has peaked, while realization is expected to improve on higher LME. Copper production will be impacted in 1Q due to maintenance shutdown, but the outlook is positive with increase in sulfuric acid and DAP prices.
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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