MOSL: HINDALCO (Buy)-Stable performance in India-Novelis getting stronger
Hindalco: Stable performance in India; Novelis getting stronger; After de-risking B/S, focus shifts to high-IRR projects; Maintain Buy
(HNDL IN, Mkt Cap USD8.7b, CMP INR249, TP INR344, 38% Upside, Buy)
Hindalco’s standalone (HNDL S/A) 3QFY18 EBITDA increased 11% YoY to INR13.1b and adj. PAT increased 54% YoY to INR5b, in line with estimates. Reported PAT at INR3.8b was impacted by INR1.15b provisions toward bauxite mine in Jharkhand. HNDL and Utkal have prepaid debt of INR11.3b in 3Q (INR57b in 9MFY18). Utkal EBITDA increased 73% YoY (+23%) to INR2.47b on higher prices.
- Aluminum EBITDA (incl. Utkal) increased 2% QoQ (+15% YoY) to INR11.6b. EBITDA per ton increased 3% QoQ to USD552/t, driven by higher LME. Metal sales were down 1% QoQ to 325kt. Alumina production increased 3% QoQ to 734kt, helped improved bauxite supply at Muri. Cost of production (CoP) increase was benign at 3% QoQ.
- Copper EBTIDA declined 12% QoQ (+ 23% YoY) to INR4b, while sales volumes increased 10% QoQ (+5% YoY) to 102kt.
After de-risking B/S, focus shifts to high-IRR projects to drive growth; Buy
- Aluminum CoP is likely to increase further by USD20-25/t on input cost pressure. HNDL SA now has 28% of FY19 volumes hedged at higher price of USD2,200/t (v/s USD2,000 in FY18).
- Spend on high-IRR projects (e.g., Utkal Alumina and VAP) is picking up. We are adjusting our model for higher capex of INR53b (v/s INR28b) in FY19 to factor in the announced investments in Novelis and India. This will drive earnings in FY21. Therefore, we are adding book value of CWIP to SOTP and roll over to FY20E. EPS has increased by 5-6% on lower tax rate in the US.
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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