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Hindalco 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, Hindalco’s standalone profit declined by 1.9% yoy while Novelis reported a net loss of US$12mn. We recommend Neutral on the stock.

Aluminium segment drags standalone profits: Hindalco’s standalone net sales increased by 11.4% yoy to Rs.6,590cr mainly on account of higher volumes in both, aluminium and copper segments. However, aluminium segment EBIT decreased by 33.4% yoy to Rs.310cr due to increase in input costs (mainly coal and crude derivatives). Nevertheless, copper segment EBIT rose by 51.1% yoy to Rs.216cr due to higher treatment and refining charges and by-product credits. Overall, Hindalco’s EBITDA decreased by 3.3% yoy to Rs.716cr. Net profit decreased by 1.9% yoy to Rs.452cr.

Low demand in Europe dents Novelis performance: Novelis’ net sales decreased by 4.0% yoy to US$2.5bn due to decrease in volumes as well as aluminium price. Shipments of aluminum rolled products decreased 9.2% yoy to 682kt primarily due to destocking in Europe. Adjusted EBITDA decreased by 10.5% yoy to US$213mn on account of higher costs and lower volumes. Novelis reported a net loss of US$12mn during 3QFY2012 compared to a loss of US$46mn in 3QFY2011.

Outlook and valuation: Hindalco is expanding its capacity three-fold over the next four years. However, there is lack of clarity over production from Mahan coal block on account of environmental issues. Without captive coal block, the upcoming Mahan smelter (expected to commission in 1QFY2013) is expected to face cost pressures. Further, lower aluminium prices and higher costs are expected to result in decline in FY2013 PAT by 3.8%. Hence, we recommend Neutral on the stock.