7 March 2014
Update | Sector: Metals
Hindalco
BSE Sensex
21,514
S&P CNX
6,401
CMP: INR120
TP: INR143
Buy
Utkal Alumina on track to lowest cost & full ramp-up
Bottom of the cycle valuations; Buy
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
HNDL IN
2,064.6
127/83
11/0/07
248.6
4.1
Financial Snapshot (INR Billion)
Y/E March
2014E 2015E 2016E
Net Sales
877.8 991.41,114.6
EBITDA
Adj PAT
EPS (INR)
Gr. (%)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
EV/EBITDA (x)
85.3 109.7 127.6
23.1
11.2
-34.1
10.7
4.8
10.8
1.1
8.7
26.2
12.7
13.4
11.1
6.3
9.5
1.0
6.9
29.5
14.3
12.8
8.7
7.2
8.4
0.6
5.7
We have returned from our site visit of Utkal Alumina with renewed
confidence in our positive view on Hindalco (HNDL). We reiterate that
HNDL offers value to long-term investors despite volatility in LME.
The company is exiting its heavy capex cycle, while cash flows are
improving due to commissioning of new low cost upstream facilities in
India and downstream auto segment investments at Novelis. Strong
copper TcRc margins are also helping cash flows.
The stock trades at attractive bottom of the cycle valuations (EV of 6.9x
FY15E EBITDA, 1x FY15E BV, 9.5x FY15E EPS). Maintain Buy.
CSR initiatives, focus on inclusive growth paying off:
We visited HNDL’s Utkal
Alumina Refinery and its Captive Mines over 4-6 March. The 1.5mtpa alumina
refinery and bauxite mines have finally overcome challenges posed by the
remote location, tough hilly terrain, local population due to underdevelopment
of the region and opportunists. HNDL’s focus on CSR and inclusive growth has
helped. The project has already touched 0.5m lives in the region.
Utkal Alumina Refinery to produce 1.55m tons per annum by FY16:
The first
750ktpa train has achieved capacity utilization of ~90% (45% for full 1.5mtpa
capacity). The second train of 750ktpa is expected to be commissioned by the
end of March. With this, alumina production should increase from 300k tons in
FY14 to 1-1.3m tons in FY15, depending on commissioning of the long distance
conveyor (LDC). The 21km LDC is nearly 80% complete and is expected to be
commissioned by the end of October 2014. Production is likely to further
increase to 1.55m tons in FY16.
One of the world’s lowest cost alumina refineries:
The refinery has already
achieved cost of production of ~USD220/ton, which will further reduce to
USD180-190/ton once the LDC is completed, coal linkages are secured and full
capacity utilization is achieved. It will be the lowest cost producer in the world.
Cost of further expansion to 3mtpa to be 30-35% lower:
Since the entire
infrastructure has been set up with 3mtpa capacity in mind, the incremental
capex for doubling capacity should be 30-35% lower. Though HNDL has not
firmed up expansion plans, we believe it will not be able resist investment in
expansion of the world’s lowest cost refinery, once the LDC is commissioned
and balance sheet leverage falls. We are bullish on the pricing outlook for
alumina as highlighted in our Aluminum Sector Update dated 24 September
2013 and subsequent ban on bauxite exports from Indonesia.
Shareholding pattern (%)
Dec-13 Sep-13 Dec-12
Promoter
Dom. Inst
Foreign
Others
37.0
13.3
36.8
12.9
37.0
14.4
34.6
14.0
32.1
14.7
37.8
15.5
Please refer to our Detailed
Report dated 24 September 2013
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 3982 5412
Investors are advised to refer through disclosures made at the end of the Research Report.

Hindalco
Hindalco Industries (HNDL) organized a site visit to its recently commissioned
1.5mtpa Utkal alumina refinery at Tikri in Rayagada district in the western part of
Odisha over 4-6 March. The trip involved two days of to-and-fro road/flight travel
and one day of actual site visit. Our key takeaways:
Baphlimali: High quality, low cost bauxite mine
The bauxite mine has reserves of 200m tons (with potential upside), spread over
1,389 hectares at an elevation of 1,050 meters on the Baphlimali hilltop. We
travelled from one end of the lease area to another end and found it to be
completely barren, with no human habitation, which implies no hurdle from locals in
mining. Major part (~70%) of the lease area falls in the Rayagada district and the rest
in the Kalahandi district. The mine has low strip ratio of less than 1. Bauxite is found
at a depth of 5-6 meters to 25-30 meters from the surface. The cost of mining
bauxite is low (~INR400/ton inclusive of royalty) due to low strip ratio and ease of
mining in the area.
Baphlimali bauxite mines
Mining has begun at a
corner of the lease area in
Rayagada
Source: Company, MOSL
The mine is located at a distance of 21km from the refinery. Currently, bauxite is
being transported through tipper trucks. The 21km long distance conveyor (LDC) is
80% constructed. There are some intermittent discontinuities due to difficult terrain
and high tension power lines, which will be filled up in due course. The entire 21km
stretch is expected to be completed by October 2014. Utkal has already acquired
50m wide land along the entire LDC keeping in mind future expansions.
21km conveyor
80% complete
Source: Company, MOSL
7 March 2014
2

Hindalco
Red mud pond: Lined with polymer
Bauxite storage
Source: Company, MOSL
Source: Company, MOSL
Alumina refinery: Cost of production one of the lowest in the world
The bauxite has high percentage (39-41%) of THA (Tri Hydrate Alumina) and low
percentage (1.3-1.7%) of reactive silica. Energy consumption is among the lowest in
the world (~8GCal/ton) because digestion takes place at a low temperature of 140-
145 degree Celsius as the ore is largely Gibbsite. Caustic consumption too is low at
50kg (v/s 110kg for Renukoot) due to low percentage of reactive silica. Since the
distance to mines is just 21km (v/s an average of ~400km for Renukoot), road
transport cost too is much lower at INR250/ton. The overall cost of bauxite is
expected to be ~INR400/ton once the LDC is fully commissioned (v/s ~INR1,500/ton
for Renukoot). The overall cost of alumina at current input prices is expected to be
INR11,000/ton (USD180/ton) once fully commissioned, 30-40% lower than
Renukoot. Currently, the average cost of production hovers around USD220/ton
due to higher cost of e-auction coal, higher fixed overheads in ramp-up phase, and
trucking of bauxite. The cost of coal is expected to decline once linkage coal
(0.8mtpa Letter of Assurance by the Ministry of Coal) becomes available.
Pre-desilication unit: Common for both trains
Digestion area: Two parallel trains separated by blue lifts
Source: Company, MOSL
Source: Company, MOSL
7 March 2014
3

Hindalco
Precipitation area: Two parallel trains
Calciners and silos
Source: Company, MOSL
Source: Company, MOSL
Alumina: Ready for dispatch
Refinery: Entry and exit gates
Source: Company, MOSL
Source: Company, MOSL
Utkal to achieve full capacity utilization in 2HFY15
The 1.5mtpa refinery has been divided into two trains, each with a capacity of
750ktpa. So
me sections – grinding, pre-desilication, raw material handling, mining –
are common for both trains. The first train was commissioned towards the end of
1QFY14. Since then, alumina production has been ramping up every quarter – from
41k tons in 2Q to 87k tons in 3Q; target of 160k-170k tons in 4QFY14, achieving
rated capacity of train-1. The second train is targeted for commissioning by the end
of March 2014. Most sections of train-2 are already tested by taking them into the
circuit of the first train. Once the calciner is completed, train-2 will be
commissioned. Ramp-up of the second train will be much faster, aided by the
experience gained in commissioning the first train. Utkal is targeting to produce
1.3m tons in FY15, subject to commissioning of the LDC by October 2014 and at full
capacity of 1.55m tons in FY16.
7 March 2014
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
2011
720.8
18.7
85.9
11.9
27.5
58.4
14.4
4.3
-9.8
38.4
9.6
25.1
28.8
38.6
186.4
-3.6
35.0
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
80.6
10.0
28.6
52.0
20.8
10.1
-2.2
39.1
8.9
22.7
30.2
32.4
-8.8
0.0
32.5
2014E
877.8
9.5
85.3
9.7
36.8
48.4
29.6
11.5
-4.2
26.1
7.1
27.2
19.0
23.2
-28.5
-0.1
23.1
(INR Billion)
2015E
991.4
12.9
109.7
11.1
44.4
65.3
38.3
9.0
0.0
36.0
9.8
27.1
26.3
26.3
13.3
-0.1
26.2
2016E
1,114.6
12.4
127.6
11.4
52.4
75.2
43.5
8.5
0.0
40.3
10.6
26.4
29.6
29.6
12.7
-0.1
29.5
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
2011
1.9
288.3
290.2
313.7
37.6
663.7
392.7
158.0
234.6
92.5
18.7
361.6
137.4
75.4
80.7
68.1
167.8
104.3
63.4
193.9
663.7
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
447.5
186.6
260.9
338.3
16.0
397.7
143.3
89.5
105.8
59.1
182.5
96.1
86.3
215.2
990.8
2014E
2.1
383.0
385.0
592.6
33.3
1,028.8
611.0
223.4
387.6
279.4
16.1
390.8
140.1
89.5
102.1
59.1
205.6
119.2
86.3
185.2
1,028.8
(INR Billion)
2015E
2016E
2.1
2.1
405.8
431.9
407.8
434.0
577.6
562.2
34.9
37.3
1,038.4
1,052.0
778.3
902.8
267.8
320.2
510.4
582.5
180.4
92.5
16.3
16.5
392.6
439.1
161.1
182.4
100.0
111.9
72.5
85.6
59.1
59.1
221.9
239.1
135.5
152.8
86.3
86.3
170.8
199.9
1,038.4
1,052.0
E: MOSL Estimates
7 March 2014
5

Hindalco
Financials and valuation
Ratios
Y/E March
Basic (INR)
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Valuation (x)
Payout (incl. Div. Tax.)
P/E
Cash P/E
Price / Book Value
EV/Sales
Profitability Ratios (%)
EV/EBITDA
Dividend Yield (%)
Turnover Ratios
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Leverage Ratio
Asset Turnover (x)
2011
2012
2013
2014E
2015E
2016E
18.3
32.6
86.9
1.5
9.5
6.6
3.7
1.4
0.6
5.4
1.2
17.7
32.7
88.3
1.5
10.1
6.8
3.7
1.4
0.7
7.1
1.2
17.0
31.9
100.7
1.4
10.6
7.1
3.8
1.2
0.9
8.8
1.2
11.2
29.0
108.7
1.4
14.9
10.8
4.1
1.1
0.8
8.7
1.2
12.7
34.2
119.8
1.4
13.1
9.5
3.5
1.0
0.8
6.9
1.2
14.3
39.7
210.2
1.4
11.6
8.4
3.0
0.6
0.7
5.7
1.2
23.5
9.9
20.3
7.3
18.0
5.8
10.7
4.8
11.1
6.3
8.7
7.2
1.2
1.1
0.9
0.9
1.0
1.1
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
2011
85.9
-13.1
-7.1
62.3
-79.1
3.3
4.9
-70.8
0.1
37.4
-25.4
-3.8
8.2
-0.3
81.0
80.7
2012
81.9
-10.9
-9.3
76.1
-125.1
-11.8
-0.6
-137.6
5.5
89.5
-28.5
-4.1
62.4
0.9
80.7
81.6
2013
80.6
-13.5
-38.7
29.8
-118.7
10.7
-0.4
-108.3
0.1
143.4
-36.7
-4.0
102.8
24.2
81.6
105.8
2014E
85.3
-8.4
26.4
99.0
-97.4
11.5
0.0
-85.9
16.2
0.0
-29.6
-3.4
-16.8
-3.6
105.8
102.1
(INR Billion)
2015E
2016E
109.7
127.6
-8.2
-8.2
-15.2
-16.0
86.3
103.4
-68.2
-23.9
9.0
8.5
0.0
0.0
-59.2
-15.4
0.0
0.0
-15.0
-28.0
-38.3
-43.5
-3.4
-3.4
-56.7
-74.9
-29.6
13.1
102.1
72.5
72.5
85.6
E: MOSL Estimates
7 March 2014
6

Hindalco
NOTES
7 March 2014
7

Disclosures
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merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
Hindalco
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based on this report or for any necessary explanation of its contents.
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Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
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 LTD
No
No
No
No
Analyst Certification
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Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United
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The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-
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In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Anosh Koppikar
Kadambari Balachandran
Email:anosh.Koppikar@motilaloswal.com
Email : kadambari.balachandran@motilaloswal.com
Contact(+65)68189232
Contact: (+65) 68189233 / 65249115
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
For Singapore
Motilal Oswal Securities Ltd
7 March 2014
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
8