HINDALCO INDUSTRIES QUICK COMMENT FAIRLY CONFIDENT MANAGEMENT - June 09, 2010
Management sounds quite confident about project timelines: Management shared the proportion of outlay expended on its green-field and brown-field projects and sounded confident of meeting the project timelines at the Analyst meeting arranged to discuss annual results in detail and share outlook.
Company specific positive developments:
1. Though we believe there could be delays beyond the stated timelines, overall the company's project expansion is shaping up well. (Aluminum and alumina capacities will rise by about 100% and 130% after these expansions).
2. Debt equity has fallen to about 1.1 at F10 end.
3. Copper conversion costs have fallen by about 27% YoY. As per management, the company is now in the lowest decile of the cost curve, a creditable achievement in our view.
4. The company expects its cost of production to be around US$1,000/t closer to the lower end of CRU cost curve for Aluminium.
5. The company did not rule out the possibility of Alumina being decoupled from Aluminum soon as is the case of Copper concentrate. The company is long Alumina on net basis.
Management's outlook on commodity pricing: Management believes higher marginal cost of production at US$2,000/t, cost push due to higher alumina and energy costs and continued economic recovery support the case for buoyant commodity prices. However, it also believes that sovereign credit risk, China's effort to cool off and uncertainty on financing deals may present an overhang on the same. However management is neutral to bullish on demand from various sectors across geographies.
Stock Rating: Equal-weight
Industry View: Attractive
ModelWare EPS actual: (Mar 2009) INR 2.85
ModelWare EPS estimate: (Mar 2010) INR 6.74; (Mar 2011) INR 10.37; (Mar 2012) INR 13.10
Consensus EPS actual: (Mar 2009) INR 3.39
Consensus EPS estimate: (Mar 2010) INR 12.38; (Mar 2011) INR 16.03; (Mar 2012) INR 18.87
Share Price: INR 132.20 (Jun 8, 2010)
Target Price: INR 186.00
Market Cap (mm): INR 224,806
Management sounds quite confident about project timelines: Management shared the proportion of outlay expended on its green-field and brown-field projects and sounded confident of meeting the project timelines at the Analyst meeting arranged to discuss annual results in detail and share outlook.
Company specific positive developments:
1. Though we believe there could be delays beyond the stated timelines, overall the company's project expansion is shaping up well. (Aluminum and alumina capacities will rise by about 100% and 130% after these expansions).
2. Debt equity has fallen to about 1.1 at F10 end.
3. Copper conversion costs have fallen by about 27% YoY. As per management, the company is now in the lowest decile of the cost curve, a creditable achievement in our view.
4. The company expects its cost of production to be around US$1,000/t closer to the lower end of CRU cost curve for Aluminium.
5. The company did not rule out the possibility of Alumina being decoupled from Aluminum soon as is the case of Copper concentrate. The company is long Alumina on net basis.
Management's outlook on commodity pricing: Management believes higher marginal cost of production at US$2,000/t, cost push due to higher alumina and energy costs and continued economic recovery support the case for buoyant commodity prices. However, it also believes that sovereign credit risk, China's effort to cool off and uncertainty on financing deals may present an overhang on the same. However management is neutral to bullish on demand from various sectors across geographies.
Stock Rating: Equal-weight
Industry View: Attractive
ModelWare EPS actual: (Mar 2009) INR 2.85
ModelWare EPS estimate: (Mar 2010) INR 6.74; (Mar 2011) INR 10.37; (Mar 2012) INR 13.10
Consensus EPS actual: (Mar 2009) INR 3.39
Consensus EPS estimate: (Mar 2010) INR 12.38; (Mar 2011) INR 16.03; (Mar 2012) INR 18.87
Share Price: INR 132.20 (Jun 8, 2010)
Target Price: INR 186.00
Market Cap (mm): INR 224,806
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CA.RAJESH DHIRAJLAL DESAI
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