10 May 2017
4QFY17 Results Update | Sector: Metals
Hindalco
Buy
BSE SENSEX
30,248
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
9,407
HNDL IN
2,243
419.7 / 6.5
204 / 84
-5/-3/91
2087
65.3
CMP: INR187
TP: INR242(+29%)
Novelis: Excellent quarter and an excellent deal
Upgrade TP to factor in sale of Korea unit; Maintain Buy
Novelis reported one of its best-ever EBITDA of USD292m (+5% YoY/15% QoQ;
beat of 7%), led by a better metal mix and operating cost savings. FCF
generation (post capex and interest) rose ~2x YoY to USD332m. Interest cost fell
25% YoY to USD59m on lower debt and refinancing. Adj. PAT was up 62% YoY to
USD47m. For FY17, adj. EBITDA (ex-metal lag) was up 12% YoY to INR1,085m.
FCF generation was higher than guided at USD361m (v/s USD160m in FY16).
Volumes recover on strong auto shipments; margins improve
Shipments were flat YoY at 789kt (1% beat), bucking the declining trend over
past few quarters, led by strong growth in auto shipments (+26% YoY). EBITDA/t
increased USD19/30 YoY/QoQ to USD370/t.
Ulsan plant (S Korea) 50% JV @ USD315m with Kobe Steel is value-accretive
The plant was under-utilized (~220kt production in FY17 v/s capacity of 350-
400kt) and faces competition from Chinese players. The deal would leverage on
Kobe’s facilities in China to drive better utilization and sustainability.
Management expects no EBITDA/volume impact from the deal. Cash flow of
USD260m (net of taxes/fees) would go toward further deleveraging.
Higher volumes, FCF and stable capex in FY18
Guidance (a) volumes to be higher YoY on increase in auto shipment (share to
rise from 20% in 4QFY17 to 25% by end-FY19). (b) Sustainable EBITDA margin of
USD340-360/t. (c) FCF generation higher YoY (d) Capex at USD200-250m.
Deleveraging continues; India business on strong footing; Upgrade TP
Novelis achieved net debt/EBITDA of 4x one year ahead of target. Strong FCF
and asset sale will drive further deleveraging. Management would start
looking at growth opportunities as B/S improves, leveraging its position in
the auto market. Indian business benefits from strong LME/cost advantage.
We include proceeds from Ulsan sale in FY18, resulting in lower debt. TP is
upgraded to INR242/share (from INR235). Reiterate
Buy.
Financials & Valuations (INR b)
Y/E Mar
2017
2018E
Net Sales
1,026
1,092
EBITDA
133.4
142.3
PAT
39.1
50.7
EPS (INR)
17.5
22.6
Gr. (%)
45.8
29.6
BV/Sh (INR)
117.6
146.6
RoE (%)
15.9
17.1
RoCE (%)
8.2
8.7
P/E (x)
10.7
8.3
P/BV (x)
1.6
1.3
2019E
1,108
147.8
58.0
25.9
14.4
171.0
16.3
8.9
7.2
1.1
Estimate change
TP change
Rating change
Quarterly Performance – USD m
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 6129 1523
Dhruv Muchhal
(Dhruv.Muchhal@MotilalOswal.com); +91 22 6129 1549

Hindalco
Other highlights
EBITDA improvement was driven primarily by lower operating cost, as gains
from higher volumes were more than offset by weaker mix and pricing.
Operating cost improvement was driven by better metal mix, savings in freight
and logistics cost and favorable LME-scrap spread.
Recycled content increased from 53% to 55% in FY17.
Auto shipments increased by 26% YoY in 4QFY17 led by increase in sales in
North America. Auto volumes represented ~20% of total volumes, which would
increase to 25% by end of FY19.
North America remains a strong market. Cans market is growing gradually. Auto
has good potential. North America volumes, after the 8% YoY increase in
4QFY17, would continue to do well.
Kobe Steel transaction
The deal would help reduce the risk of rising FRP capacities in China.
The capacity is currently under-utilized and will leverage Kobe Steel’s
downstream operations in China. Product mix will also improve towards
auto products from cans/sheets.
The net proceeds from sale of the plant is USD260m, after adjusting for
taxes and fees.
The transaction is concluded at a valuation of USD1.68b/mt. In 2013, the
Korean facility was expanded by 350kt at a cost of USD400m, implying a cost
of USD1.1b/t.
Regional performance
North America – autos drive volumes:
Volumes were up 8% YoY to 269kt on
increase in auto products shipments (benefit of Ford Superduty). EBITDA
increased 9% YoY to USD105m. EBITDA per ton (adjusted for metal price lag)
was broadly flat YoY at USD390/t on pressure on cans.
Europe - steady:
Volumes were up 1% YoY to 235kt. EBITDA increased 4% YoY to
USD58m. EBITDA per ton (adjusted for metal price lag) was up 2% YoY to
USD247/t.
Asia – volumes lower:
Volumes were down 3% YoY to 174kt on competition.
EBITDA was down 3% YoY to USD31m. EBITDA per ton (adjusted for metal price
lag) was flat YoY at USD178/t.
Brazil – hedges benefit:
Volumes were down 2% YoY to 125kt on weak market.
EBITDA was however up 10% YoY to USD808m, on favorable currency hedges
(USD20m benefit). EBITDA per ton (adjusted for metal price lag) was up 12% YoY
to USD808/t.
10 May 2017
2

Hindalco
Exhibit 1: Adjusted EBITDA (USD m) was USD292m
250 233
221 228 214 213
292
277 268 270
255
236 238
Exhibit 2: EBITDA/t up 5% YoY; Shipments were flat YoY
EBITDA/ton (USD)
Shipments (ktpa)
770 765 757 758 768 788 779 788 755 773 750 789
Source: MOSL, Company
Source: MOSL, Company
Exhibit 3: FRP shipments (kt) increased in NA (kt)
320
260
200
140
80
North America
Europe
Asia
South America
Exhibit 4: EBITDA/t improved (USD/t)
1,000
800
600
400
200
0
North America
Europe
Asia
South America
Source: MOSL, Company
Source: MOSL, Company
Guidance for FY18 is
USD200-250m.
Exhibit 5: Capex (USDm) cycle has peaked
Source: MOSL, Company
Novelis’ net debt was down
to USD4.2b on strong
operating performance.
Exhibit 6: Net debt declined
Source: Company, MOSL
10 May 2017
3

Hindalco
Exhibit 7: Operating cash flows after working capital change (USD m)
Operating cash flows was
an inflow of USD419m.
Source: Company, MOSL
Exhibit 8:
Share of auto volumes to increase to 25% from ~15% in FY16; 1.8x of FY16 volumes
Management was
optimistic on increasing
trends towards aluminum in
autos. It expects further
announcements over the
next 18-24 months. Novelis
targets to achieve 25% auto
sheets in its product mix
Share in product mix
Kt (RHS)
25%
22%
18%
15%
12%
9%
6%
FY12
FY14
FY15
FY16
FY17E
FY18E
FY19E
Source: MOSL, Company
Exhibit 9: Target price derivation
EBITDA
EV/EBTIDAx
Target EV
Net Debt
EQ = (EV-net Debt)
A. INR/share(EQ)
Investments (quoted)
B. INR/share (investments)
C.discount factor (%)
Implied Price (A+B*(1-C%))
Assumptions
USD/INR
LME
FY15
89,446
FY16
106,053
FY17
133,381
7
487,958
FY18E
142,333
6.5
925,166
420,839
504,326
225
48,375
22
20
242
68.3
1,750
FY19E
147,755
6.5
960,404
349,706
610,698
272
48,375
22
20
290
70.9
1,700
564,761
553,738
61.1
1,889
65.5
1,592
67.1
1,665
Source: MOSL, Company
10 May 2017
4

Hindalco
Exhibit 10: Metal sector valuation
Rating
Steel
Tata Steel
JSW Steel
JSPL
SAIL
Non-Ferrous
Hindalco
Nalco
Vedanta
Mining
Coal India
Hindustan Zinc
NMDC
Sell
Buy
Buy
Sell
Buy
Buy
Neutral
Buy
Sell
Buy
Price MCAP
EPS
(INR) (USD M) FY17E FY18E FY19E
438
197
114
61
187
68
229
278
255
126
6,614
7,420
1,624
3,924
6,007
2,707
10,547
27,330
16,768
7,764
18.9
13.6
-22.3
-7.4
17.5
3.9
17.7
15.9
19.7
11.9
39.4
18.3
-17.5
-12.6
22.6
5.3
24.7
18.7
21.5
12.1
45.7
20.5
-2.2
0.4
25.9
5.8
27.7
20.9
23.7
12.8
P/E (x)
FY18E FY19E
11.1
10.8
-6.5
-4.9
8.3
12.6
9.3
14.9
11.8
10.4
9.6
9.6
-51.7
163.8
7.2
11.6
8.3
13.3
10.8
9.8
EV/EBITDA (x)
FY18E FY19E
7.2
6.6
9.6
58.4
5.9
5.1
5.7
7.0
7.2
6.6
6.6
5.8
6.6
10.3
5.2
4.4
5.7
6.3
6.2
6.1
P/B(x)
FY18E FY19E
2.8
1.9
0.3
0.8
1.3
1.2
1.2
6.9
3.0
1.6
2.3
1.6
0.3
0.8
1.1
1.1
1.1
6.9
2.5
1.5
Source: MOSL, Company
10 May 2017
5

Hindalco
Financials and Valuations
Income Statement
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
2012
808,214
12.1
81,897
10.1
28,699
53,199
17,579
7,831
0
43,450
7,862
18.1
1,618
33,970
33,970
-2.9
2012
1,915
317,198
319,113
17,091
410,165
36,050
782,419
428,945
186,608
242,338
150,097
227,981
17,483
376,124
132,460
80,172
81,556
81,937
231,604
144,520
782,419
2013
801,928
-0.8
80,584
10.0
28,611
51,973
20,791
10,122
-2,216
39,088
8,857
22.7
-38
30,269
32,485
-4.4
2013
1,915
351,388
353,302
17,593
569,061
34,677
974,633
482,107
221,255
260,852
160,497
338,311
15,962
430,275
143,317
89,523
105,771
91,664
231,263
199,011
974,633
2014
876,955
9.4
82,863
9.4
35,528
47,335
27,016
10,172
-3,960
26,531
5,249
19.8
-468
21,750
25,710
-20.9
2014
2,065
403,984
406,048
17,805
646,952
31,750
1,102,555
748,947
267,361
481,586
169,371
230,593
23,381
474,889
166,943
92,348
117,121
98,477
277,263
197,626
1,102,555
2015
1,042,811
18.9
89,446
8.6
35,906
53,540
41,784
11,047
-19,401
3,402
2,564
75.4
-7,704
8,542
27,943
8.7
2015
2,065
381,220
383,285
9,561
684,050
25,552
1,102,448
887,802
299,816
587,986
165,651
141,113
23,216
499,495
184,511
91,864
119,289
103,830
315,011
184,484
1,102,448
2016
1,000,538
-4.1
106,053
10.6
41,961
64,091
50,467
12,113
-22,083
3,654
5,148
140.9
-4,127
2,633
24,717
-11.5
2016
2,065
382,073
384,138
3,888
674,513
17,306
1,079,845
1,018,951
352,206
666,744
173,901
42,014
31,535
471,422
167,310
79,414
120,775
103,924
305,772
165,651
1,079,845
2017
1,026,210
2.6
133,381
13.0
44,248
89,134
48,798
11,502
-15,585
36,253
14,524
40.1
-1,816
23,546
39,130
58.3
2017
2,242
435,263
437,505
3,821
632,001
22,096
1,095,423
1,064,495
396,454
668,041
173,901
24,800
33,284
532,670
196,005
88,698
144,043
103,924
337,274
195,396
1,095,423
(INR Million)
2018E
1,091,978
6.4
142,333
13.0
45,202
97,132
42,124
12,524
17,758
85,289
18,582
21.8
-1,749
68,456
50,698
29.6
2019E
1,107,998
1.5
147,755
13.3
45,424
102,331
38,932
13,611
0
77,009
20,753
26.9
-1,749
58,006
58,006
14.4
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Minority Interest
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Goodwill on consolidation
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Net Current Assets
Total Assets
(INR Million)
2018E
2019E
2,242
2,242
500,250 554,937
502,492 557,179
3,821
3,821
604,352 565,297
30,947
41,560
1,141,612 1,167,857
1,119,903 1,167,264
441,656 487,080
678,247 680,185
173,901 173,901
12,918
1,068
35,033
36,782
589,792 626,968
207,684 211,716
94,671
95,738
183,513 215,590
103,924 103,924
348,279 351,047
241,513 275,922
1,141,612 1,167,857
10 May 2017
6

Hindalco
Financials and Valuations
Ratios
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC (pre-tax)
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
33.6
88.3
1.5
9.9
10.5
5.6
2.1
8.4
0.8
20.3
7.5
11.7
1.0
36
60
50
1.9
2012
81,897
14,415
-9,322
-10,901
0
76,090
-125,119
-49,029
-11,846
-619
-137,584
5,500
89,511
-28,531
-4,110
62,371
876
80,680
81,556
2013
17.0
30.7
100.7
1.4
9.7
11.0
6.1
1.9
10.2
0.7
18.0
5.9
10.7
0.8
41
65
44
2.4
2013
80,584
1,410
-38,740
-13,478
0
29,776
-118,711
-88,936
10,729
-357
-108,340
128
143,356
-36,728
-3,977
102,779
24,215
81,556
105,771
2014
12.5
27.5
114.6
1.4
13.2
15.0
6.8
1.6
11.1
0.7
11.6
4.6
7.6
0.8
38
69
54
2.2
2014
82,863
-4,821
9,623
-9,586
0
78,079
-94,236
-16,156
10,910
1,672
-81,655
16,305
48,689
-46,919
-3,149
14,926
11,351
105,771
117,121
2015
13.5
17.8
105.4
1.4
12.1
13.8
10.5
1.8
10.6
0.7
12.3
4.9
6.9
0.9
32
65
54
2.6
2015
89,446
-5,872
-863
-11,280
0
71,431
-59,776
11,655
15,680
-796
-44,892
47
28,323
-50,253
-2,488
-24,371
2,168
117,121
119,289
2016
12.0
19.6
101.8
1.4
13.7
15.6
9.5
1.8
8.9
0.7
11.6
5.9
7.5
0.9
29
61
52
2.6
2016
106,053
-17,472
21,960
-7,830
0
102,710
-39,891
62,818
10,658
604
-28,629
3
-19,714
-50,308
-2,575
-72,594
1,486
119,289
120,775
2017
17.5
29.4
117.6
1.4
9.4
10.7
6.4
1.6
6.8
0.7
15.9
8.2
10.0
0.9
32
70
61
1.9
2017
133,381
-15,591
-6,478
-9,733
0
101,579
-28,331
73,248
11,502
0
-16,829
33,500
-42,512
-48,798
-3,672
-61,482
23,268
120,775
144,043
2018E
22.6
49.9
146.6
1.4
7.2
8.3
3.7
1.3
5.9
0.7
17.1
8.7
10.8
1.0
32
69
61
1.3
2018E
142,333
204
-6,647
-9,732
0
126,159
-28,663
97,496
12,524
17,758
1,619
0
-42,511
-42,124
-3,672
-88,308
39,470
144,043
183,513
2019E
25.9
45.4
171.0
1.4
6.3
7.2
4.1
1.1
5.2
0.7
16.3
8.9
11.2
0.9
32
70
61
0.9
2019E
147,755
354
-2,331
-10,139
0
135,638
-28,695
106,943
13,611
0
-15,083
0
-45,872
-38,932
-3,672
-88,477
32,078
183,513
215,590
Cash Flow Statement
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
(INR Million)
10 May 2017
7

Hindalco
Corporate profile
Company description
Hindalco is the largest aluminum producer in India with
total smelting capacity of 1.32mtpa. 603ktpa smelter is in
commercial operation, while 718ktpa smelters at Mahan
and Aditya are in production ramp up. 3mtpa alumina
refineries meet 80-85% of its bauxite requirement from
captive mines. Novelis is the largest flat rolled producers
in world with 3mtpa capacity and is spread over North
America, Brazil, Europe, and South Korea. Beverage cans’
consume ~60% of its output. Hindalco also has small
copper mines in Australia and operates 500ktpa, Asia’s
largest, copper smelter at Dahej.
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Mar-17
Promoter
DII
FII
Others
34.7
17.6
28.5
19.3
Dec-16
37.7
15.9
25.5
20.9
Mar-16
37.7
19.0
19.5
23.8
Source: Capitaline
Exhibit 3: Top holders
Holder Name
LIFE INSURANCE CORPORATION OF INDIA
AND ITS ASSOCIATE FUNDS
BAJAJ ALLIANCE LIFE INSURANCE COMPANY
NA
NA
NA
% Holding
9.2
1.4
0.0
0.0
0.0
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Kumar Mangalam Birla
D Bhattacharya
Satish Pai
Anil Malik
Designation
Chairman
Vice Chairman
Managing Director
Company Secretary
Exhibit 5: Directors
Name
A K Agarwala
Girish Dave
K N Bhandari
Ram Charan
Praveen Kumar Mahehswari
Name
Rajashree Birla
J Khattar
M M Bhagat
Yazdi P Dandiwala
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
BNP & Associates
R Nanabhoy & Co
Singhi & Co
Type
Secretarial Audit
Cost Auditor
Statutory
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
FY19
MOSL
forecast
24.4
14.7
25.9
Consensus
forecast
14.0
19.4
21.5
Variation (%)
73.7
-24.2
20.6
Source: Bloomberg
Source: Capitaline
10 May 2017
8

Hindalco
NOTES
10 May 2017
9

Disclosures
This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company (ies) and/sector(s), if any, covered in the report and may be distributed by it
and/or its affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an
offer, invitation or inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution
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Hindalco
Disclosure of Interest Statement
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No
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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:
Varun Kumar
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Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
HINDALCO INDUSTRIES
Motilal Oswal Securities Ltd
10 May 2017
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
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