Hindalco Industries - Mahan smelter to be a catalyst; Novelis, Cu steady - Religare

We recently met the HNDL management and feel that the copper (Cu) and Novelis businesses will continue to do well, while the domestic aluminium (Al) business should derive benefits from the Mahan smelter commissioning in Q1FY14. With 100kt of incremental production in Novelis, we expect US$ 1.2bn of EBITDA from the subsidiary in FY14 even as the Cu business provides stable returns. However, profitability of domestic Al operations is likely to remain muted given Mahan/Utkal start-up costs in FY14. Maintain HOLD.

- Cu business to return to normal: After an abysmal Q1FY13, we expect the Cu business to gradually normalise by FY14 with Tc/Rc margins remaining at FY13 levels ($66/t / c6.6/lb). Q3FY13 should see a slight pick-up with volumes of 80-85kt.

- Novelis EBITDA target of US$ 1.2bn in FY14: Though Q3FY13 will remain weak for Novelis, we expect it to meet its EBITDA target of US$ 1bn in FY13. With the current capacity expansion at Novelis supporting 100kt of incremental production, we expect US$ 1.2bn in EBITDA in FY14. ABML operations should remain steady.

- 150kt of added Al production in FY14: With the Mahan/Utkal plants to commence in Q1FY14, we estimate ~150kt of added Al production in FY14 with CoP at ~US$2,000/t. Coal stockpiling has begun and stage-2 clearance of the Mahan coal block is likely in 5-6 months with mining set to start in 18 months. Mining of bauxite has started and it will be transported by truck from January till the conveyor belt is ready in 12 months.

- Al business to remain muted in Q3FY13: With continued operational constraints, Al business profitability is expected to remain strained in Q3, though the business should stabilise by FY14. Current CoP at Hirakud/Renukoot is US$ 1,800-1,850/t.

- Domestic capex of Rs 80bn in FY14: A bulk of the FY14 domestic capex of Rs 80bn will be for the Aditya Al project (Rs 50bn) expected to commence in FY15. Novelis' capex target for FY14 is US$ 500bn-550bn. Also, it has no major debt repayments till FY16.

Source : Equity Bulls

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