Hindalco Industries (Q4 FY12)

• Q4 FY12 standalone revenue of Rs76.5bn was higher than our estimate of Rs70,7bn due to higher contribution from copper
• EBIT from aluminium business improved on a qoq basis on the back of higher coal availability; EBIT increased 56.1% qoq to Rs4.8bn
• Copper business EBIT jumped 35.8% qoq as volumes increased 8.3% qoq to 95,000 tons and higher by-product sales
• Operating profit of Rs8.7bn was higher than our estimate on the back of improved aluminium division performance
• Other income of Rs1.6bn was quite higher than our estimate of Rs1bn
• We maintain our BUY rating on Hindalco with a revised 9-month price target of Rs164

Result table (Standalone)

Source: Company, India Infoline Research

Copper division lead to higher than expected topline growth

Q4 FY12 revenue of Rs77bn was higher than our estimate of Rs70bn on account of higher than estimate copper production. Copper division revenue was higher by 16.7% qoq to Rs51.5bn due a 8.3% increase in copper production and higher copper realisations. Copper production remained on the recovery path, rising from the low of 74,588 tons of production in Q2 FY12 due to bi-annual shutdown at its smelter. Copper production for the quarter was 95,000 tons, higher from 87,748 tons in Q3 FY12. This is the highest ever quarterly copper production for Hindalco. Aluminium division revenue was higher by 11.7% qoq on account of higher aluminium prices and higher product premiums. Aluminium metal production decreased by 1.6% qoq to 144,000 tons from 146,374 tons in Q3 FY12. Alumina production during the quarter gained marginally by 0.6% qoq to 345,000 tons as availability of bauxite improved.

Production volumes

Source: Company, India Infoline Research

Segmental results

Source: Company, India Infoline Research

Operating profit jumps 21% qoq due to higher availability of coal

In Q4 FY12, Hindalco’s operating profit increased 21% on a qoq basis and lower by 5.4% on a yoy basis. Operating profit for the quarter stood at Rs8.7bn, higher than our estimate. OPM expanded on a qoq basis as availabity of coal improved. Power and fuel costs as a % of sales decreased from 11.1% in Q3 FY12 to 9.7% in Q4 FY12 due to higher coal supply from Coal India. The increase in margins was also aided by higher aluminium prices and an increase in copper production. Employee costs declined 7.8% on a qoq basis due to one-offs in Q3 FY12.

Cost analysis

Source: Company, India Infoline Research

Standalone PAT outperformance was aided by higher other income

Hindalco’s PAT of Rs6.4bn was higher than our estimate of Rs5bn. The outperformance in PAT was due to higher operating profit and higher than expected other income. Other income for the quarter jumped 78.2% qoq to Rs1.6bn from Rs0.9bn in Q3 FY12.

Novelis to drive earnings

Hindalco has managed to bounce back sharply over the last two months on the back of rising metal prices and increase in investor risk appetite. Novelis results were weaker during the quarter due to severe destocking in US & Europe and lower demand from the electronics industry in Asia. Management expects significant recovery in Q4 FY12 led by end of destocking, strong automotive demand and recovery in consumer electronics in Asia and in can segments, especially in Brazil. We expect the company to achieve its lowered FY12 adjusted EBIDTA guidance from US$1.1-1.5bn to US$1-1.08bn and report strong performance in FY13. We would revise our estimates post the consolidated results, once we have more clarity on future projects. We continue to remain bullish on the company and Hindalco remains our top bet in the metals and mining space. We maintain our BUY rating on the stock with a revised 9-month price target of Rs164.