The CMO Survey - Highlights and Insights Report - Spring 2024
Hindalco novelis ru4 qfy2010-280510
1. 4QFY2010 Result Update I Base Metals
May 28, 2010
Hindalco BUY
CMP Rs151
Performance Highlights Target Price Rs 208
Hindalco’s subsidiary, Novelis, reported strong set of numbers for 4QFY2010. Investment Period 12 month
Top-line grew 24.8% yoy and 14.6% qoq to US $2,420mn as sales volume
grew 16.1% yoy and 10.7% qoq to 716kt. Adjusted EBITDA spiked 336% yoy Stock Info
and 16% qoq to US $231mn. The company reported Net Loss of US $1mn Sector Base Metals
v/s a Loss of US $16mn in 4QFY2009. Following expiry of Novelis’s metal
price ceiling contracts and expected benefit from the price increases and cost Market Cap (Rs cr) 28, 842
savings measures we maintain our Buy recommendation on the stock. Beta 1.7
Strong 4QFY2010 performance by Novelis: Novelis reported a 24.8% yoy 52 WK High / Low 188/68
and 14.6% qoq increase in Top-line to US $2,420mn. Sales volume increased
Avg. Daily Volume 24,82,110
by 16.1% yoy and 10.7% qoq to 716kt . On a yoy basis, all regions registered
a sharp increase in volumes ranging from 5-50%. On a qoq basis, volumes Face Value (Rs) 1
except for Asia grew by 3-23% (3Q tends to be the weakest quarter in North
BSE Sensex 16,863
America and Europe). In Asia, volumes fell 3% qoq due to the Lunar holidays
in China. Adjusted EBITDA increased 336% yoy and 16% qoq to Nifty 5,067
US $231mn as Adj. EBITDA/tonne increased to US $323 (US $291 in
3QFY2010 and US $81 in 4QFY2009). Reuters Code HALC.BO
Bloomberg Code HNDL@IN
Focus on increasing capacity: Novelis is focusing on increasing its capacity in
the emerging markets. The company has announced plans of expanding Shareholding Pattern (%)
capacity by 50% in Brazil at an investment of US $300mn, benefits of which
Promoters 32.1
are to be seen in FY2013E. Further, management has also indicated that it is
looking for investment opportunities in Asia to capitalise on the growing MF/Banks/Indian FIs 19.8
demand.
FII/NRIs/OCBs 39.7
Outlook and Valuation: At the CMP of Rs151, the stock is trading at 5.7x
Indian Public 8.4
FY2011E and 5.4x FY2012E EV/EBITDA. Following expiry of Novelis’s metal
price ceiling contracts and expected benefit from the price increases and cost Abs. (%) 3m 1yr 3yr
saving measures, we maintain our Buy recommendation on Hindalco, with a
SOTP Target Price of Rs208. Sensex 2.6 18.0 17.1
Hindalco (6.5) 84.9 15.3
Key Financials (Consolidated)
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Sales 65,415 60,712 63,898 67,521
% chg 9.6 (7.2) 5.2 5.7
Net Profit 485 2,987 3,664 3,890
% chg (79.7) 515.5 22.7 6.2
EPS (Rs) 2.9 15.6 19.1 20.3
OPM (%) 4.6 13.4 13.0 13.8
P/E (x) 52.8 9.7 7.9 7.4
Paresh Jain
P/BV (x) 1.6 1.4 1.2 1.0
Tel: 022 – 4040 3800 Ext: 348
RoE (%) 2.9 16.1 15.9 14.6 E-mail: pareshn.jain@angeltrade.com
RoCE (%) - 10.9 10.6 10.2
Pooja Jain
EV/Sales (x) 0.7 0.8 0.7 0.7
Tel: 022 – 4040 3800 Ext: 311
EV/EBITDA (x) 16.0 5.8 5.7 5.4
E-mail: pooja.j@angeltrade.com
Source: Company, Angel Research
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539
2. Hindalco I 4QFY2010 Result Update
Exhibit 1: Novelis: 4QFY2010 Performance
(US $mn) 4QFY10 4QFY09 % yoy FY10 FY09 % yoy
Net Revenue 2,420 1,939 24.8 8,673 10,177 (14.8)
Cost of goods sold 2,141 1,606 33.3 7,190 9,251 (22.3)
(% of Net Sales) 88.5 82.8 82.9 90.9
Gross Profit 279 333 (16.2) 1,483 926 60.2
(% of Net Sales) 11.5 17.2 17.1 9.1
Selling and Administrative exp. 100 73 37.0 360 319 12.9
(% of Net Sales) 4.1 3.8 4.2 3.1
Research and Development expenses 11 8 37.5 38 41 (7.3)
(% of Net Sales) 0.5 0.4 0.4 0.4
EBITDA 168 252 (33.3) 1,085 566 91.7
EBITDA margin (%) 6.9 13.0 12.5 5.6
Restructuring charges 7 81 (91.4) 14 95 (85.3)
Depreciation 99 109 (9.2) 384 439 (12.5)
Other Income/(Expense) 4 (33) 25 (86)
EBIT 62 62 687 32
(% of Net Sales) 2.6 3.2 7.9 0.3
Net Interest expense 41 43 (4.7) 164 168 (2.4)
Unrealised Gain/(loss) on derivative 2 (40) 194 (556)
Exceptional items 0 122 0 (1,218)
Profit before tax 27 68 (60.3) 742 (1,996) -
(% of Net Sales) 1.1 3.5 8.6 (19.6)
Taxes 15 83 (81.9) 262 (246) -
(% of PBT) 55.6 122.1 35.3 12.3
PAT 12.0 (15.0) - 480 (1,750) -
(% of Net Sales) 0.5 (0.8) 5.5 (17.2)
Profit from Associates (3) (6) - (15) (172) -
Minority Interest (10) 5 - (60) 12 -
Net Income (1) (16) - 405 (1,910) -
Source: Company, Angel Research
Key Concall takeaways
Capacity utilisation is Asia and South America was more than 100%. While
Europe witnessed average utilisation rate of close to 100% (after closure of
Rogerstone plant which is being shifted to India), North America suffered from
over capacity. The company expects demand supply balance to be restored by
3QFY2011E.
FY2011E is likely to register volume growth of around 5% over FY2010E due to
debottlenecking.
The company incurred capex of US $101mn in FY2010. It proposes to increase
capex to US $250mn for FY2011E, with maintenance capex of
US $250mn
Novelis expects Adj. EBITDA to exceed US $1bn, though the time frame was not
specified.
May 28, 2010 2
3. Hindalco I 4QFY2010 Result Update
Exhibit 2: Shipments across geographies
(Kt) 4QFY2010 4QFY2009 % yoy 3QFY2010 % qoq
Total Sales 756 651 16.1 683 10.7
North America 282 256 10.2 254 11.0
Europe 250 219 14.2 204 22.5
Asia 130 87 49.4 134 (3.0)
South America 94 89 5.6 91 3.3
Source: Company, Angel Research
Exhibit 3: Average Realisation across geographies
(US $/tonne) 4QFY2010 4QFY2009 % yoy 3QFY2010 % qoq
Average Realisation 3,201 2,978 7.5 3,092 3.5
North America 3,252 3,273 (0.7) 3,094 5.1
Europe 3,400 3,059 11.1 3,554 (4.3)
Asia 3,100 2,575 20.4 2,910 6.5
South America 2,734 2,326 17.6 2,582 5.9
Source: Company, Angel Research
Outlook and Valuation
At the CMP of Rs151, the stock is trading at 5.7x FY2011E and 5.4x FY2012E
EV/EBITDA. Following expiry of Novelis’s metal price ceiling contracts and expected
benefit from the price increases and cost saving measures, we maintain our Buy
recommendation on Hindalco, with a SOTP Target Price of Rs208.
Exhibit 4: SOTP Valuation
FY2012E Multiple EV Stake Attributable Value
EBITDA (Rs cr) (x) (Rs cr) (%) EV (Rs cr) (Rs/share)
Hindalco (Standalone) 4,380 6.5 28,471 100 28,471 149
Novelis 4,945 5.5 27,196 100 27,196 142
Total EV 55,667 291
Less: Net Debt
18,380 95
(FY11E)
Value of Investments
2,280 12
@25% discount
Value per share 208
Source: Angel Research
Key risks to our call: 1) Significant movement in metal prices, 2) Adverse exchange
rate movements, and 3) Delay in completion of expansion projects.
May 28, 2010 3
9. Hindalco I 4QFY2010 Result Update
Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: ww.angeltrade.com
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Disclosure of Interest Statement Hindalco
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock Yes
3. Angel and its Group companies’ Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies
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Tel: (022) 3952 4568 / 4040 3800
Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE:
INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946
Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM /
CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302
May 28, 2010 9