Hindalco - 3QFY12 Results Update - Motilal Oswal

Hindalco 3QFY12 standalone: volumes up 13% QoQ; slow progress on projects; equity dilution surprise

- Standalone PAT falls due to lower other income: Hindalco's (HNDL) standalone adjusted PAT for 3QFY12 declined 10% QoQ to INR4.5b due to lower other income. EBITDA increased 7% QoQ to INR7.15b due to 35% increase in copper EBITDA, while aluminum EBITDA declined 5% to INR4.5b.

- Volumes up 13% QoQ: Both copper and aluminum volumes were up 13% each. Copper EBIT margins increased 12% QoQ to USc22.1/lb. EBIT increased 46% QoQ to INR2.1b on higher TcRc charges and by-product credit despite high energy costs. According to our calculations, the cost of production (CoP) has declined 9% QoQ to USD1,786/ton for Aluminum largely due to depreciation of INR vs USD.

- Board approves warrants to promoters on preferential basis: 150m warrants have been allotted to the promoters as per Sebi formula, which works out at minimum of INR150, i.e. average of last 2 weeks being higher than average of last 6 months. The equity dilution has taken us by surprise. The company has already incurred capex of INR41.7b in 9MFY12. Capex target of USD2b now looks ambitious.

- Economic uncertainties hit Novelis' performance: Novelis reported adjusted EBITDA of USD213m, while volumes declined 9% YoY. Economic uncertainties affected demand and triggered destocking in Europe and Asia. We are cutting volumes by 284,000 tons to 3.2m tons and EBITDA per ton by USD10 to USD345 for FY13.

- Estimates lowered, maintain Buy: We have cut our consolidated EPS estimate for FY13 by 7% to INR19.5 largely due to lower guidance for Novelis. Stock is trading at 8.2x FY13E EPS and 1.4x FY13E BV (adjusted for goodwill) with RoE of 18.6%. Bulging CWIP is adversely affecting EV/EBITDA valuations. Adjusting for CWIP of INR136b, stock is trading at 3.9x FY13E EV/EBITDA. We value the stock at SOTP-based price of INR199. Maintain Buy.

Source : Equity Bulls

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