13 August 2013
1QFY14 Results Update | Sector:
Metals
Hindalco
BSE SENSEX
19,230
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
5,699
HNDL IN
1,914.6
137/83
-6/-15/-34
CMP: INR91
TP: INR128
Buy
Standalone results above expectations; production starts at
Mahan and Utkal
M.Cap. (INR b) / (USD b) 175.1/2.9
Financials & Valuation (INR b)
Y/E MAR
Net Sales
EBITDA
Adj PAT
Adj.EPS
(INR)
Growth
(%)
BV/Share
(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (X)
2013
801.9
83.3
35.2
18.4
3.7
100.6
19.5
6.1
5.0
0.9
2014E 2015E
849.7
89.5
32.9
17.2
-6.7
114.6
15.9
5.6
5.3
0.8
931.9
103.4
34.3
17.9
4.4
130.7
14.6
6.3
5.1
0.7
Adjusted PAT was higher than our estimate
at INR4.7b (down 2% QoQ), driven by
superior operating performance of the Aluminum segment and higher other
income. Other income was boosted by INR1.03b non-recurring income and INR1b
dividend from subsidiary.
EBITDA increased 3.3% YoY
to INR4.8b and was 13% above our estimate, largely
driven by better product mix and cost reduction in the Aluminum segment.
Aluminum production increased 5% YoY
to 139kt. Despite 8% fall in average LME,
aluminum EBITDA increased 4% QoQ to INR3.5b due to lower cost of production.
Production has begun at Mahan and Utkal.
First metal has been tapped at Mahan
smelter under trial production. Utkal Alumina too has started production. Alumina
production increased 4% YoY to 348kt. Aditya is at an advanced stage.
Copper segment EBITDA was impacted
due to shutdown. Copper EBITDA
declined 58% QoQ to INR1.3b due to unabsorbed fixed costs on lower production.
Other projects may be put on hold:
Hindalco is re-evaluating Aditya Alumina and
the Jharkhand smelter due to delays in getting permits and uncertainties.
Maintain Buy:
We continue to find Hindalco attractive despite headwinds and
high debt. Outlook for the conversion business remains strong. Net debt has
peaked; the USD8b capex will be mostly done in FY14. Cash flows are likely to
improve as various projects start to generate cash. The stock trades at an
attractive P/BV of 0.7x. Maintain
Buy.
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 3982 5412
Pavas Pethia
(Pavas.Pethia@MotilalOswal.com); +91 22 3982 5413
Investors are advised to refer through disclosures made at the end of the Research Report.

Hindalco
Adjusted PAT at INR4.7b was higher than estimate
Superior performance from
aluminium segment and
higher other income
boosted PAT
Adjusted PAT higher than estimate (down 2% QoQ) at INR4.7b due to superior
performance from Aluminum segment and higher other income.
EBITDA increased 3.3% YoY to INR4.8b and was 13% above estimate largely
driven by better product mix and cost reduction in aluminum segment.
Other income was boosted by INR1.03b non-recurring income and INR1b of
dividend from subsidiary.
First metal tapped at
Mahan smelter
Aluminum EBTDA up 4% QoQ despite 8% lower LME
Aluminum EBITDA increased 4% QoQ to INR3.5b despite 8% fall in average LME.
Apparently CoP has declined.
First metal has been tapped at Mahan smelter. The full ramp up of Mahan
smelter however will take 6-12 months.
Aluminum production increased 5% YoY 139kt. Production from Mahan smelter
was 2,100tons in 1QFY14.
Utkal Alumina too has started production. Alumina production increased 4% YoY
to 348kt.
Aluminum segment: product wise sales (kt)
Primary Metal
84
9
45
77
58
10
54
64
88
9
46
79
79
8
50
85
Rolled Products
58
7
45
79
70
7
39
83
67
52
88
7
75
56
85
Extrusions
9
54
8
49
66
71
9
53
65
Alumina(RHS)
74
9
51
75
81
9
53
86
64
9
50
71
Source: MOSL, Company
Hindalco Aluminum Business (INR m)
Segmental Revenue
less: Alumina
(a) Revenue (only Aluminium products)
Sales (000 tons)
Realization (INR/ton)
EBITDA
Less: Alumina EBITDA (50% margin)
(b) EBITDA (only Aluminium products)
Costs (a - b)
Aluminium costs (INR/ton)
USD/INR
LME (USD/ton)
Aluminium costs (USD/ton)
Realization (USD/ton)
Product premium over LME
EBITDA per ton (USD)
~ COP (LME - EBITDA/t +150) USD/ton
1QFY12
20,931
1,660
19,271
131
147,110
6,761
830
5,931
13,340
101,833
44.7
2,598
2,276
3,288
690
1,012
1,736
2QFY12
22,132
2,020
20,112
129
155,907
4,758
1,010
3,748
16,364
126,854
45.4
2,398
2,794
3,434
1,036
640
1,908
3QFY12
22,362
1,980
20,382
147
138,652
4,532
990
3,542
16,840
114,559
51.0
2,090
2,246
2,719
629
472
1,768
4QFY12
24,986
2,170
22,816
149
152,942
5,258
1,085
4,173
18,643
124,968
50.2
2,175
2,491
3,049
874
558
1,767
1QFY13
20,626
2,930
17,696
124
142,862
3,415
1,465
1,950
15,745
127,116
54.2
1,978
2,345
2,636
658
291
1,837
2QFY13
21,049
2,160
18,889
127
148,732
2,609
1,080
1,529
17,360
136,692
55.2
1,918
2,476
2,694
776
218
1,850
3QFY13
22,155
2,170
19,985
135
148,584
3,110
1,085
2,025
17,960
133,528
54.2
1,997
2,464
2,741
744
278
1,869
4QFY13
23,961
2,360
21,601
147
146,845
3,388
1,180
2,208
19,393
131,835
54.3
2,002
2,430
2,707
705
277
1,875
1QFY14
22,111
2,000
20,111
130
155,181
3,515
1,000
2,515
17,597
135,778
56.0
1,834
2,425
2,771
937
346
1,638
13 August 2013
2

Hindalco
Copper production affected
due to maintenance
shutdown
Copper EBITDA down 58% QoQ due to lower production
Copper production was down 1.5% YoY (19% QoQ) to 68kt due to maintenance
shut down taken during the quarter.
Copper EBITDA declined 58% QoQ to INR1.3b due to unabsorbed fixed costs on
lower production.
Copper Segment product wise sales(kt)
Copper Cathodes
43
35
51
31
32
53
41
38
CC Rods
40
37
48
54
34
37
37
36
37
45
46
47
23
26
34
41
49
43
Source: MOSL, Company
Project review perhaps
imply no further capex
Net debt has peaked as USD8b CapEx in last stages; Maintain Buy
Hindalco is re-evaluating Aditya alumina and Jharkhand smelter due to delays in
getting permits and uncertain economic environment. Deferring/shelving of
these projects will positively address the ballooning CWIP concerns for HNDL.
We continue to find HNDL attractive despite headwinds and high debt. The
outlook for conversion business continues to remain strong. Net debt for the
company has peaked as the USD8b capex will be mostly done in FY14. Cash
flows are expected to improve as various projects start to generate cash. Stock
trades at an attractive P/BV of 0.7x. Maintain
Buy.
Target price calculations (INR m)
EBITDA
EV/EBTIDAx
Target EV
Net Debt
EQ = (EV-net Debt)
A. INR/share(EQ)
CWIP
B. INR/share (CWIP)
C. discount factor (%)
D. Investments (quoted)
E. INR/share (investments)
F.discount factor (%)
TP (A+B*(1-C%)+E*(1-F%)) (INR/share)
FY11
85,868
6.0
515,211
233,027
282,184
147
92,518
48
FY12
81,897
6.0
491,384
346,851
144,533
75
227,981
119
FY13
83,324
6.0
499,943
479,505
20,438
11
280,000
146
FY14E
89,506
5.0
447,528
496,100
-48,572
-25
246,350
129
12
47,630
25
20
108
FY15E
103,423
5.0
517,114
482,993
34,122
18
195,500
102
12
47,630
25
20
128
13 August 2013
3

Hindalco
Hindalco: an investment profile
Company description
Hindalco Industries (HNDL) is the largest aluminum
producer in India and has captive bauxite mines from
which it sources ~67% of requirements for its 1.5mtpa
alumina refinery. Company also has a 0.54mtpa melting
capacity and is the largest maker of flat rolled aluminum
products in India. After turning Novelis around in 2010,
HNDL is focusing on tripling its aluminum production
capacity in India in the next three years through
brownfield and greenfield projects. Its copper smelting
capacity of 500ktpa is the largest in Asia.
Recent developments
Board of Directors has appointed Mr.Satish Pai as an
Additional and Whole-time Director on the Board of the
Company
Valuation and view
We continue to find HNDL attractive despite significant
headwinds and high debt. The outlook for conversion
business continues to remain strong. Net debt for the
company has peaked as the USD8b capex will be mostly
done in FY14. Cash flows are expected to improve as
various projects start to generate cash. Stock trades at
an attractive P/BV of 0.7x. Maintain
Buy.
Key investment arguments
Company's new smelting capacities are coming up
near energy sources and alumina facilities are near
bauxite mines, thus ensuring low cost of
production.
We expect Novelis to deliver strong earnings, given
its focus on high margin business, expansions in key
markets and continued efforts to improve operating
efficiencies across locations.
Sector view
Aluminum consumption growth is expected to remain
strong while oversupply is expected to narrow. At
current prices significant capacities are making cash
losses. Thus, we expect LME prices to improve from
current levels. We factor aluminum price of USD2,000/t
in FY15E.
Key investment risks
An unexpected fall in aluminum prices, sluggish growth
in developed countries and further delays in expansion
activities could adversely impact earnings.
Comparative valuations
Hindalco
P/E (x)
P/BV (x)
EV/Sales (x)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
EV/EBITDA (x) FY14E
FY15E
5.3
5.1
0.8
0.7
0.8
0.7
7.5
6.4
Sesa -Sterlite
4.8
4.8
0.5
0.4
1.4
1.1
5.6
5.0
Nalco
8.0
6.8
0.6
0.5
0.5
0.3
2.5
1.5
FY14
FY15
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
17.2
17.9
Consensus
Forecast
13.5
14.4
Variation
(%)
27.7
24.3
Target price and recommendation
Current
Price (INR)
91
Target
Price (INR)
128
Upside
(%)
40.7
Reco.
Buy
Shareholding pattern (%)
Jun-13
Promoter
Domestic Inst
Foreign
Others
32.1
15.6
37.1
15.3
Mar-13
32.1
15.5
35.2
17.3
Jun-12
32.1
15.2
36.5
16.2
Stock performance (1-year)
13 August 2013
4

Hindalco
Financials and valuation
Income statement
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Min. Int. & Assoc. Share
Adj Cons PAT
2012
808.2
12.1
81.9
10.1
28.7
53.2
17.6
7.8
0.0
43.4
7.9
18.1
35.6
35.6
-7.9
-1.6
34.0
2013
801.9
-0.8
83.3
10.4
28.6
54.7
20.8
10.1
-5.0
39.1
8.9
22.7
30.2
35.2
-1.1
0.0
35.2
(INR Billion)
2014E
849.7
6.0
89.5
10.5
33.2
56.3
26.3
12.2
-2.8
39.4
9.3
23.5
30.2
33.0
-6.3
-0.1
32.9
2015E
931.9
9.7
103.4
11.1
38.1
65.3
32.1
12.3
0.0
45.5
11.1
24.4
34.4
34.4
4.3
-0.1
34.3
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2012
17.7
32.7
88.3
1.5
10.1
5.2
2.8
1.0
0.6
6.4
1.6
20.3
7.3
1.1
36.2
59.8
55.5
2.1
2013
18.4
33.3
100.6
1.4
9.7
5.0
2.7
0.9
0.8
7.9
1.5
19.5
6.1
0.9
40.7
65.2
48.8
2.5
2014E
17.2
34.5
114.6
1.4
10.4
5.3
2.7
0.8
0.8
7.5
1.5
15.9
5.6
0.8
36.3
59.5
55.8
2.3
2015E
17.9
37.8
130.7
1.4
10.0
5.1
2.4
0.7
0.7
6.4
1.5
14.6
6.3
0.9
36.5
58.9
56.0
1.9
Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2012
1.9
317.2
319.1
428.4
36.1
800.7
428.9
186.6
242.3
228.0
17.5
354.5
132.5
80.2
81.6
60.4
191.8
110.5
81.3
162.8
800.7
2013
1.9
351.4
353.3
585.3
34.7
990.8
534.4
215.2
319.2
280.0
15.9
397.7
143.3
89.5
105.8
59.1
182.5
96.1
86.3
215.2
990.8
(INR Billion)
2014E
2015E
1.9
1.9
378.0
408.9
379.9
410.8
592.5
592.5
35.4
38.4
1,025.7 1,059.8
675.5
775.6
248.4
286.5
427.1
489.0
246.4
195.5
15.9
15.9
378.5
412.2
138.4
150.4
84.5
93.2
96.4
109.5
59.1
59.1
202.6
213.4
116.3
127.1
86.3
86.3
175.8
198.8
1,025.7 1,059.8
E: MOSL Estimates
Cash flow statement
Y/E March
EBITDA
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2012
81.9
-10.9
-9.3
76.1
-124.0
-13.3
-5.7
-142.9
10.9
89.5
-28.5
-4.1
67.7
0.9
80.7
81.6
2013
83.3
-8.9
-28.2
46.2
-130.7
1.5
-0.3
-129.5
0.0
141.6
-30.8
-3.2
107.5
24.2
81.6
105.8
(INR Billion)
2014E
89.5
-8.5
30.0
107.9
-107.4
12.4
0.0
-95.1
0.0
7.2
-26.3
-3.1
-22.2
-9.4
105.8
96.4
2015E
103.4
-8.2
-9.8
85.1
-49.3
12.5
0.0
-36.8
0.0
0.0
-32.1
-3.1
-35.2
13.1
96.4
109.5
13 August 2013
5

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Hindalco
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Disclosure of Interest Statement
1. Analyst ownership of the stock
2. Group/Directors ownership of the stock
3. Broking relationship with company covered
4. Investment Banking relationship with company covered
HINDALCO INDUSTRIES
No
No
No
No
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13 August 2013
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6