Stock Market Result Update on Hindalco for 1QFY2012

Stock Market Result Update on Hindalco for 1QFY2012 with a Buy recommendation and a Target Price of `196 (12 months).

For 1QFY2012, Hindalco reported robust set of numbers for its standalone operations as well as for Novelis. However, the company reported delays in its Utkal and Aditya projects. Nevertheless, we expect robust growth in profits during FY2012 and FY2013. We maintain our Buy view on the stock.

Higher costs mute standalone EBITDA growth: Hindalco’s standalone net revenue grew by 16.2% yoy to `5,979cr due to higher realisation despite a decline in sales volume. However, EBITDA grew only by 4.2% yoy to `868cr. EBITDA margin dipped by 167bp yoy to 14.5% due to higher raw-material and energy costs. Interest expense grew by 12.5% yoy to `67cr, while other income grew by 158.1% yoy to `178cr. Consequently, net profit grew by 20.6% yoy to `644cr.

Robust performance by Novelis continues: Novelis’ top line grew by 22.9% yoy to US$3,113mn on the back of higher realisation. Shipments decreased by 1.5% yoy to 767kt (excluding ingots). Adjusted EBITDA grew by 26.8% yoy to US$298mn on the back of improved product mix. EBITDA/tonne increased by 10.3% yoy to US$374. Net income grew by 24.0% yoy to US$62mn.

Outlook and valuation: At the CMP, the stock is trading at 5.6x FY2012E and 5.2x FY2013E EV/EBITDA. We believe Hindalco is well placed to benefit from

a) its aluminium expansion plans (capacity increasing by nearly three folds in the next four years), b) low production cost at its new capacities and c) steady capacity expansion at Novelis. We maintain our Buy recommendation on the stock with an SOTP target price of `196.