MOSL: HINDALCO (Buy)- Higher LME prices to drive earnings growth
HINDALCO: Higher LME prices to drive earnings growth
(HNDL IN, Mkt Cap USD13.4b, CMP INR442, TP INR520, 18% Upside, Buy)
- HNDL’s 1QFY22 result for the India business was strong, as expected, with EBITDA up 29% QoQ to INR24.3b on higher LME prices. Consolidated net debt increased by INR45b QoQ to INR519b, and net debt/EBITDA declined to 2.36x (v/s a peak of 4x after the Aleris acquisition).
- We maintain our estimates and reiterate HNDL as our top non-ferrous pick. Despite rising costs, we estimate India EBITDA/t in FY22E to be the highest ever in the last 10 years at USD959/t. We expect 43% EPS CAGR over FY21-23E, led by stronger LME price and lower interest cost from deleveraging.
Higher LME prices boost EBITDA by 29% QoQ
- India (standalone+Utkal) EBITDA was up 29% QoQ to INR24.3b (+7% v/s our est.). Adjusted PAT rose 62% QoQ to INR10.4b (-5% v/s our est.).
- EBITDA for the Aluminum segment rose 29% QoQ to INR23.5b (est. INR20.9b), despite an 8% QoQ decline in volumes (303kt, -4% v/s our est.), due to higher LME prices (USD2,393/t, +14% QoQ). Aluminum derived CoP rose 2% QoQ. However, the entire benefit of higher LME prices did not flow through as the company had hedged 33% of aluminum prices at USD1,915/t (v/s an average LME price of USD2,393/t during 1QFY22). EBITDA/t was strong at USD1,052 (+41% QoQ) (est. USD898/t).
- Copper EBITDA declined by 19% QoQ to INR2.6b due to lower sales volumes (80kt, -25% QoQ) as the company took a maintenance shutdown in 1QFY22. EBITDA/t improved by 9% QoQ to USD442/t on higher by-product realization.
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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