Hindalco – Aluminum Smelting Profits

Hindalco Industries’ (Hindalco, standalone) Q4FY10 net revenues, at INR 54.0 bn, were below our expectation of INR 58.2 bn. EBITDA, at INR 8.35 bn, was below estimates due to preponed shutdown of copper smelter for 38 days leading to ~15 kt of lost production. However, net profit, at INR 6.6 bn, was above our estimate of INR 5.5 bn due to higher-than-expected other income and tax write-back of INR 1.1 bn.

PBIT of the aluminum business was INR 6.1 bn (INR 1.6 bn in Q4FY09) against INR 4.4 bn in Q3FY10. The 40% Q-o-Q increase in PBIT was led by 8% Q-o-Q rise in LME prices and stable costs.

Copper business’ PBIT was at INR 1.3 bn (INR 510 mn in Q4FY09 and INR 1.6 bn in Q3FY10). PBIT was down 20% Q-o-Q as copper production declined 20% Q-o- Q (due to smelter shutdown owing to lower spot TcRc). During the quarter, the company posted net derivative loss of INR 290 mn (INR 570 mn loss in Q3FY10).

The company hopes to commission its Mahan smelter and Utkal alumina project by July 2011 and the Aditya smelter by October 2011.
However, we believe these projects will not be commissioned before end-F2H12.

Hindalco ESP for FY 11 and FY 12 and Stock Target Price:
HSBC – 10.3 and 19 with target of 180
Edelweiss – 17 and 19 with target of 210
Morgan Stanley – 10 and 13 with target of 186
Consensus Estimates – 14.75 and 17.80