Hindalco Industries Ltd (Q2 FY13)

India Infoline News Service | Mumbai |

Hindalco Industries Ltd (Q2 FY13)

CMP Rs114, Target Rs135, Upside 18.7%

  • Q2 FY13 standalone revenue of Rs61.6bn was lower than our estimate of Rs63.5bn. The underperformance was due to lower by-products revenue
  • The company managed to ramp up its copper production after taking a bi-annual maintenance shutdown in Q1 FY13.
  • Aluminium production was impacted due to some operational issues at both its smelter and due to unavailability of bauxite. Aluminium division EBIT was lower than estimate due to high power costs.
  • Operating profit of Rs5.2bn was 23% lower on a yoy basis due to a sharp increase in other expenditure.
  • Novelis continued to report strong numbers, both in volumes and margin
  • We maintain our BUY rating on Hindalco with a revised 9-month price target of Rs135
Result table (Standalone)
(Rs mn) Q2 FY13 Q1 FY13 % qoq Q2 FY12 % yoy
Net sales 60,279 76,471 (21.2) 60,309 (0.0)
Material costs (38,951) (53,161) (26.7) (38,252) 1.8
Power and fuel costs (7,573) (7,440) 1.8 (6,353) 19.2
Personnel costs (2,902) (2,678) 8.4 (2,501) 16.0
Other overheads (6,222) (4,544) 36.9 (4,528) 37.4
Operating profit 4,631 8,648 (46.4) 8,675 (46.6)
OPM (%) 7.7 11.3 (363) bps 14.4 (670) bps
Depreciation (1,705) (1,658) 2.8 (1,754) (2.8)
Interest (815) (801) 1.8 (667) 22.1
Other income 3,014 1,605 87.8 1,779 69.4
PBT 5,126 7,794 (34.2) 8,033 (36.2)
Tax (878) (1,395) (37.0) (1,589) (44.7)
Effective tax rate (%) 17.1 17.9   19.8  
Adjusted PAT 4,248 6,400 (33.6) 6,445 (34.1)
Adj. PAT margin (%) 7.0 8.4 (132) bps 10.7 (364) bps
Reported PAT 4,248 6,400 (33.6) 6,445 (34.1)
Ann. EPS (Rs) 17.7 26.7 (33.6) 26.9 (34.1)
Source: Company, India Infoline Research

Lower by-product revenues led to a miss in topline

Q2 FY13 standalone revenue of Rs61.6bn was lower than our estimate of Rs63.5bn due to lower revenue from by-products. Copper division revenue of Rs40.6bn was lower than our estimate of Rs43bn as contribution from by-products reduced. Copper production which had declined sharply in Q1 FY13 as the company had taken maintenance shutdown increased on a qoq basis. The production of copper cathodes was inline with our estimate, but that of CC rods was lower. Aluminium division revenue was marginally higher than our estimate despite lower aluminium production. Aluminium production for the quarter was lower by 3% qoq and 10.7% yoy to 128,000 tons. The outperformance in aluminium business revenue was led by strong product premiums. Alumina production during the quarter too was lower by 2.1% qoq to 328,000 tons. The company expects aluminium production to improve marginally in Q3 FY13 and then ramp up to full capacity in Q4 FY13.


Quarterly production performance
(Tons) Q2 FY13  Q1 FY13 % qoq Q2 FY12 % yoy
Alumina 328,000 335,000 (2.1) 332,383 (1.3)
Aluminium 128,000 132,000 (3.0) 143,315 (10.7)
Rolled Products 62,000 57,827 7.2 52,439 18.2
Copper Cathodes 78,000 69,000 13.0 74,588 4.6
CC Rods 37,000 36,000 2.8 33,972 8.9
Source: Company, India Infoline Research

Operating profit decline 23% yoy due to lower production and jump in coal costs

In Q2 FY13, Hindalco’s operating profit declined sharply by 23% on a yoy basis to Rs5.2bn, lower than our estimate of Rs5.7bn. The decline in operating profit was largely due to an increase in coal and caustic soda costs and lower metal production. OPM shrunk 231bps on a yoy basis and increased 68bps on a qoq basis.  Operating profit was also impacted due to the operational issues at aluminium smelters and lower by-product revenues. Power and fuel costs as a % of sales increased from 12% in Q2 FY12 and 12.6% in Q1 FY13 to 13.1% in Q2 FY13. Aluminium operations remained impacted by some power issues at its smelter and the alumina refinery impacted by the lower availability of bauxite. EBIT from the aluminium division declined 60% yoy and 37% qoq to Rs1.7bn quite lower than our estimate. On the other hand, EBIT of Rs2.1bn from the copper business was higher than our expectation.


Cost Analysis
As a % of net sales Q2 FY13 Q1 FY13 bps qoq Q1 FY12 bps yoy
Material costs 64.9 64.6 26 65.4 (55)
Power and fuel costs 13.1 12.6 52 12.0 108
Personnel Costs 5.1 4.8 26 4.6 43
Other overheads
BSE 238.00 [1.70] ([0.71]%)
NSE 238.10 [1.60] ([0.67]%)

***Note: This is a NSE Chart

 

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