Hindalco - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, Hindalco's standalone net sales and profits were above our estimates. However, we recommend Neutral on the stock.

Aluminium segment drags standalone profits: Hindalco's standalone net sales increased by 11.9% yoy to Rs.7,563cr mainly on account of higher aluminium sales volumes. However, aluminium segment EBIT decreased by 14.0% yoy to Rs.484cr due to increase in input costs and lower realizations. Nevertheless, copper segment EBIT rose by 42.5% yoy to Rs.293cr due to higher production, higher treatment and refining charges and improved efficiencies. Overall, Hindalco's EBITDA decreased by 5.4% yoy to Rs.865cr and net profit decreased by 9.7% yoy to Rs.640cr.

Hindalco issues warrants and raises debt to fund projects: During 4QFY2012, Hindalco allotted 15cr warrants to promoters at a price of Rs.144.35. The company also issued non-convertible debentures of Rs.3,000cr during April 2012. The proceeds would be utilized mainly to fund its expansion projects in our view.

Outlook and valuation: Although Hindalco is expanding its capacities three-fold over the coming four-five years, low aluminium prices, rising costs and delay in commencement of mining from captive blocks are expected to mute its profitability growth in the medium-term. In the near-term, there is lack of clarity over production from Mahan coal block for its upcoming Mahan smelter. Without captive coal block, the Mahan smelter (expected to commission in 1QFY2013) is expected to face cost pressures, resulting in lower return ratios over the next two years. Moreover, we do not rule out delays in upcoming projects. Hence, we recommend Neutral on the stock.

Source : Equity Bulls

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