Hindalco Industries - An Integrated
SCRIP ID – HINDALCO 52 WEEKS HIGH – 188.20
BSE CODE – 500440 52 WEEKS LOW – 68.40
INDUSTRY – ALUMINIUM BOOK VALUE – 147.50
FACE VALUE – 1.0 EPS – 10.82
An industry leader in aluminum and copper, Hindalco Industries Limited, the metals
Flagship Company of the Aditya Birla Group is one of the world's largest aluminum
rolling companies and one of the biggest producers of primary aluminum in Asia. At
present Hindalco is metals powerhouse with high-end rolling capabilities and a global
footprint in 12 countries. Its consolidated turnover of USD 15 billion (Rs. 600,128
million) places it in the Fortune 500 league. Recently Hindalco declared its FY10
results. It posted 8 fold net profit, up 709% due to improved earnings from Novelis and It
proposed a dividend of 135% at Rs. 1.35 per share.
Hindalco’s subsidiary Novels produces an estimated 19 percent of the world's flat-rolled
aluminum products and is the number one producer in Europe, South America and
Asia, and the second-largest in North America. Aditya Birla Minerals is located in
Western Australia and Queensland, respectively. ABML, an S&P ASX 300 Index
company, is the largest pure copper company listed on the Australian Stock Exchange.
And Hindalco Almex manufactures high-strength aluminium alloys for applications in the
aerospace, sporting goods and surface transport industries.
CapitalHeight view - Hindalco Industries strength is being the largest aluminum
producer in India and possesses biggest copper smelting capacity plant in Asia.
Hindalco is tripling its production in aluminum with the help of various expansion plans
progressively going on specifically Hirakud’s and Brownfield and based near Bauxite
mines ensures low cost of production. Its Aluminum Segment has reported
improvement in margins due to higher LME prices & rise in product premiums while its
expansion capacity will kick start in FY12 boosting its volumes in FY13. Novelis too has
shown turnaround of its business on the basis of end of price ceiling contracts and
reprising of margins in North America. Novelis, particularly, improved the revenue
margin significantly for Hindalco. Its EBITDA run-rate of $200mn is expected to continue
and company will increase its North American shipments of aluminum for cans by 3%
increasing its Aluminum segment wise revenue.
With that, Hindalco sits on a heavy cash flow in near future with many expansion plans
going on its various business front at the same time. Its Aluminum segment reported
11% fall in revenue and consolidated sales too dropped by 8%. Undecided copper TcRc
due to rigid supply of concentrate is continuing to depress its copper margins and
company is in much need to seek copper mines and low cost of concentrate.
On the expansion side, its Utkal aluminum, Mahan Aluminum and Aditya Aluminum
plans are pushed back by 2 months and are expected to be completed by Q2-Q3FY12.
Hirakud plant is further proposed to be expanded from 213ktpa to 360 ktpa which will
require huge financing, burdening the liability side. Its Utkal Aluminum project cost is
increased by Rs. 400mn, Mahan and Aditya aluminum cost is increased by Rs 10bn to
Rs. 92bn as well. This signals a worrying cash outflow company is sitting on and it will
increase the consolidated debt as well in the near future. This will be only eased in
FY12 and there is no particular good news in earnings of the company for the time
being. We recommend SELL on Hindalco.
Strength & Opportunities
The standalone sales increased by 7% Rs. 19,536 cr for FY 10. The company
has sustained a better cost management in FY10.
In this FY10, Hindalco operated very much efficiently producing the highest metal
ever complemented by its substantial cost savings.
Hindalco has scaled up its Hirakud smelter and power expansion project to 360
KTPA from the earlier planned 213 KTPA. The captive power plant for the project
too will be raised to 967.5 mw as against the proposed 467.5 mtpa.
The copper business contributed Rs 12,575 cr in net sales, a rise of 13%.
The EBIT for the copper business soared three times to Rs 1,003 cr.
Aditya Birla Minerals, the Australian mining subsidiary of Hindalco, reported a net
profit of Rs 246 cr against a loss Rs 304 cr last year.
Hirakud’s Brownfield expansion is underway from 155 ktpa to 213 ktpa by 2012.
Hindalco is the largest aluminum producer in india with a market share of 45%
and is the only player that converts 67% of metal production into value added
products like aluminum foils & packaging material.
Hindalco has a copper smelting capacity of 500 kpta that is largest in Asia.
The company has a future plan of tripling its aluminum production in next three
years through Brownfield and Greenfield expansions in india.
Weakness & Threats
Copper business lost Rs. 750 cr as well on lower by-product credit.
Post repayment of bridge loan and low treasury corpus for acquisition of Novelis
and expansion plans led other income of the company too declined by Rs. 377 cr
to Rs. 260 cr.
Hirakud’s Brownfield expansion from 155kpta to 213 kpta is pushed back by
8 months i.e. inQ4FY12.
The company’s consolidated sales fell by 8% to Rs. 60, 722 cr due to weak
Utkal alumina 1.5 mtpa aluminum refinery’s commissioning has been pushed
back to Q2 FY12 presents a major challenge in its domestic business front.
Commitment on Rs. 56b capex has been increased by 15pp to 81% taking
its project cost marginally higher to Rs. 400 mn. a worrying cash outflow for
Aluminum business, one of its core business revenue fell by 11% to Rs. 48,901
cr due to lower LME and less demand in world markets and eroded its aluminum
business profit by around Rs. 750 cr.
In short term Hirakud’s expansion is seen in FY11 while most of its project are
completing in FY 12 & FY 14. Till then the company has a huge cash outflow to
Company's dividend payouts over the last 5 years
Year Month Dividend (%)
2010 Jun 135
2009 Jun 135
2008 Jun 185
2007 Mar 170
2006 Jul 220
Key Financial Ratios (On Quarterly Standalone Basis)
4QFY09 4QFY10 %YoY FY09 FY10 %YoY
Sales(Rsm) 37718.00 54434.00 44.30 181731.00 197723.00 8.80
EBITDA(Rsm) 3144.00 8644.00 174.90 29894.00 27099.00 -9.30
8.30 15.90 16.40 13.70 -270 BPS
(Margin %) BPS
Interest (Rsm) 821.00 705.00 -14.10 3369.00 2780.00 -17.50
1681.00 1684.00 0.20 6452.00 6672.00 3.40
948.00 777.00 -18.10 6834.00 2599.00 -62.00
PBT(Rsm) 1590.00 7031.00 342.20 26907.00 20246.00 -24.80
Tax(Rsm) 407.00 1286.00 216.20 6108.00 4130.00 -32.40
Tax(%) 25.60 18.30 -730BPS 22.70 20.40 -230BPS
PAT(Rsm) 1183.00 5744.00 385.50 20798.00 16116.00 -22.50
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