Hindalco - 3QFY13 results expectation - Ambit

(HNDL IN, mcap US$4bn, SELL, TP Rs110, 3% downside)

Analyst: Jatin Kotian, jatinkotian@ambitcapital.com, Tel: +91 22 3043 3261

Hindalco will announce its 3QFY13 results today. We expect standalone revenues of Rs69.6bn, up 5% YoY and 13% QoQ, which would be mainly driven by sequentially higher aluminium prices and normalisation of production (which was disrupted in the previous quarters). We expect EBITDA to increase by 24% QoQ to Rs6.4bn, because production normalisation is also likely to sequentially improve EBITDA margins. We build in EBITDA margin of 9.2% for the quarter vs 8.4% in 2QFY13.

Key factors to watch for in the results would be: (a) energy pricing; (b) bauxite availability; and (c) progress of the ongoing projects – the Mahan and Aditya smelters and the Mahan coal block.

We reiterate our SELL stance on Hindalco, because we remain skeptical about the economics at the Mahan smelter, which is under commissioning. We also have long-term concerns over the viability of Indian smelters, given bauxite and energy availability issues and the bleak outlook for aluminium prices. Our DCF-based target price values the stock at Rs110, implying an FY14 EV/EBITDA of 6.4x and FY14 P/B of 0.6x.

Source : Equity Bulls

Keywords