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Sunday, February 12, 2012

Hindalco Industries Ltd:-Buy/sell/growth prospects and recommendation,news and results,target and analysis,view and outlook,multibagger

Scripscan:Hindalco Industries Ltd

Story:Hindalco Industries, novelis' Q3FY12 revenue declined 4% YoY to USD2.5bn on a 9% YoY decline in shipments of 682kt. Adjusted EBITDA declined 11% YoY to USD213mn on higher operating cost and lower volumes. EBITDA/t at USD312, though flat YoY, declined 21% QoQ. Adjusted net loss at USD12mn was higher YoY (loss of USD2mn in Q3FY11) due to high interest expense on USD4.8bn debt restructuring in FY11."Although LME aluminium declined 10% YoY, Novelis' blended realisation improved 6% YoY as blended premium over LME increased 42% YoY (and 11% QoQ) to USD1,515/t. Novelis' adjusted EBITDA/t contracted 1% YoY and 21% QoQ to USD312, mainly on lower sales volume. Total shipments declined 9% YoY and 11% QoQ to 682kt on destocking in several regions on weak demand (mainly Europe) and continued weakness in the electronics business in Asia. Shipment in Europe declined 10% YoY and 22% QoQ in a seasonally weak quarter, impacted further by destocking. Consequently, Europe's EBITDA/t at USD119 contracted 43% YoY and 67% QoQ. Novelis is on track to increase capacity by ~1.0mntpa across locations by 2013 for a total capex of USD1.5bn, out of which they spent USD123mn in Q3FY12. Further, the company acquired 31.2% minority stake in Korean subsidiary for USD343mn, raising its ownership to 99%. Novelis has net debt of USD4.1bn, with liquidity of USD857mn. In Q3, Novelis generated USD186mn of pre-capex free cash (vs USD106mn in Q3FY11).Although Novelis has turned-around and is on course to achieve FY11 EBITDA in FY12E, the company has reduced FY12E EBITDA guidance slightly to USD1.05- 1.08bn from USD1.10-1.15bn earlier, on weak performance in Q3, mainly due to pressure in Europe. Further, we believe that Novelis turn-around is factored in Hindalco's valuation, as next leg of growth in Novelis (volume-driven) is expected FY14 onwards. Further, we are cautious on Hindalco due to lower LME price, sticky cost structure, delay in alumina & captive coal projects for greenfield aluminium expansions and high financial leverage. We downgrade Hindalco to 'SELL' with a SOTP-based target price of Rs122.

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