Hindalco Industries - Growth - margin tradeoff - ESPIRITO SANTO Securities

Massive expansion at Hindalco India and Novelis should provide a volume boost in FY14, however margin pressure is likely to play spoilsport. Flattish to downward EBITDA guidance at Novelis for FY14, despite the commissioning of new facilities, indicates to us operational headwinds in international operations, while a secular decline in aluminium EBIT margins from 30% in Q1FY11 to 12% in Q4FY13 tells the cost story for the Indian operations.

We expect the greenfield smelters at Hindalco India (Mahan & Aditya) to face cost pressure due to delays in commissioning of associated coal blocks, resulting in an insignificant EBITDA contribution. We also expect consolidated net debt, which increased by Rs130bn in FY13, to rise further.

We maintain our Sell and trim our FV to Rs90 (from Rs97) on account of increased capex and working capital requirement.

Source : Equity Bulls

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