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Hindalco 3QFY2014 performance highlights and results update

February 14, 2014, Friday, 17:53 GMT | 13:53 EST | 23:23 IST | 01:53 SGT
Contributed by Angel Broking

Better-than-expected 3QFY2014 standalone results: Hindalco Industries (Hindalco)’s standalone 3QFY2014 top-line and adjusted net profit have come above our expectations. The net sales increased 6.1% yoy to Rs.7,201cr (above our estimate of Rs.6,775cr). The other income increased by 17.4% yoy to Rs.204cr and the interest costs decreased by 2.3% yoy to Rs.165cr; hence the adjusted net profit increased by 15.4% yoy to Rs.334cr (above our estimate of Rs.224cr). Its Mahan coal block has received stage-II forest clearance – which is structurally positive for the company.

Healthy performance at Novelis: For 3QFY2014 Novelis’ net sales grew by 4.4% yoy at US$2,422mn. The aluminium shipments in 3QFY2014 declined 11.4% yoy to 721kt. The EBITDA increased by 5.8% yoy at US$183mn and therefore the company's PAT increased by 333.3% yoy to US$13mn.

Outlook and valuation: Although Hindalco has expanded its aluminium capacity recently, low aluminium prices, sticky costs and delay in commencement of mining from captive blocks have resulted in decline in profitability over the past few quarters. In the near-term, its profitability is likely to be muted due to higher costs at Mahan smelter and low aluminium prices. Nevertheless, receipt of stage-II forest clearance for Mahan coal block is structurally positive for the company. Further, with recent decline in stock price, we upgrade our stock rating to Buy with a SOTP-based target price of Rs.124.