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Hindalco's standalone EBITDA disappoints during the quarter

Edelweiss | Published: 17 Aug, 2012  | Source : | Follow Author | Add to my Favourites

Key Result Highlights:

- Indian operations post weak EBITDA, led by production issues:
Standalone EBITDA at Rs4.6bn was ~43% below estimates, led by production issues in both copper and aluminium segments. Copper smelters were shut for nearly 34 days resulting in production of only 69kt (down 37% q-o-q) whereas aluminium suffered power outages, leading to a 9% q-o-q fall in output to 131kt. Other expenses shot up 37% q-o-q partly due to higher repair costs of Rs400mn-450mn and increased freight of Rs150mn. While the q-o-q copper and aluminium production are expected to go up by 15kt-20kt and 10kt respectively in Q2FY13, it is likely to normalize fully in the coming 1-2 quarters.

- Novelis’ EBITDA beats estimates; guides for further improvement: Novelis reported an adjusted EBITDA of $259mn, ~11% ahead of the estimate of $234mn with total volumes of 748kt (estimate: 738kt) and EBITDA/t of $346 (estimate: $317). Both volume and EBITDA/t have been improving over the last two quarters and are up ~10% each from the bottom reached in Q3FY12. With the guidance for a further improvement, Novelis expects FY13 EBITDA to be flat y-o-y at $1.05bn (estimate: $959mn).

Outlook and valuations: Factoring lower production and high costs in the standalone entity (no change in Novelis estimates), Edelweiss lowers the consolidated EBITDA estimates by 4.5%/3.5% for FY13/FY14 respectively. Accordingly the target price gets revised down to Rs139 (Rs147earlier). On revised estimates, the stock currently trades at 7.4xFY14E. Maintain buy

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