>HINDALCO (ANAND RATHI)

Better outlook for Novelis; standalone disappoints

■ Indian operations hit, Novelis surprises. Standalone operating profit for 4Q, at Rs3.14bn, was 60% lower q-o-q. Novelis results were much better with improved outlook going forward, and we thus raise FY10 estimates. We also raise target price to Rs73.

■ Novelis surprises positively. At US$1.94bn, Novelis’ 4QFY09 sales were slightly below our estimate. Novelis surprised positively on operating profit, which came at US$74m.

■ Margin squeeze in standalone business. The standalone operating margin was squeezed to 8.3% vs our expected around 11%, mainly due to lower by-product realizations. This is evident in sharply higher raw material costs, which were up 68% qoq.

■ Capacity expansions on track. Hindalco is going ahead with its greenfield and brownfield expansions, which would triple its smelting and refining capacities. The benefits of these projects, however, are expected to fully show from FY13 on.

■ Estimates raised. We raise FY10e revenues 17%, EBITDA 10% and PAT 35%. This is consequent on the good figures by Novelis and encouraging “guidance”.

■ Valuation. We raise our target price to Rs73 (earlier Rs68). Novelis EV/EBITDA multiple is raised to 5x (earlier 4x) while keeping standalone operations’ multiple unchanged. To see full report: HINDALCO.

To see full report: HINDALCO