Aluminium Sector - IIFL

8/2/2019 Aluminium Sector - IIFL

1/28

Aluminium sector

Bottoming out

December 14, 2011

Aluminium prices have declined

29% from its 2011 peak

1,500

1,700

1,900

2,1002,300

2,500

2,700

2,900

May-10 Nov-10 May-11 Nov-11

US$/t

Source: Company, India Infoline Research

however, YTD decline has been

the lowest amongst the base

metals pack

16.4 19.6 17.6 19.2 20.0

26.2

-5

10152025

30

Aluminium

Copper

Lead

Nickel

Zinc

LMEInd

%


Decline in both the stocks has

been the highest

16.4

43.2

22.2

48.949.2

-102030405060

Aluminium

Hindalco

NALCO

BSEMetal

Sensex

%


Rupee has deprecated 19% YTD

40

45

50

55

Jan-11 Jun-11 Nov-11


Research Analyst

Tarang [email protected]

Depreciating rupee to cushion impact of lower commodity

pricesAluminium prices have tumbled from its highs hit earlier in the year(29% from peak) on worries about the strength of the global economyand thus potential industrial demand, particularly as the European

sovereign-debt crisis continues. With LME prices near US$2,000/ton,we see half of the industry in red (average global aluminium cost~US$2,000/ton) and this would lead to production cuts going ahead.We revise our aluminium prices estimates for FY12 to US$2,310/tonand US$2,250/ton for FY13. The impact of lower commodity prices onprofitability of domestic metal producers would be cushioned by thesharp depreciation in the rupee against the dollar (19% YTD). So whileproducers in other countries have seen 10-15% fall in revenues,domestic producers would see just a 1-3% fall.

Hindalco: Novelis to drive earn ingsHindalco has corrected sharply on account of 1) delay in capacity

expansion plan 2) rising interest costs 3) high coal costs 4) weakcommodity prices. We believe that most of the negatives are priced in.In FY13, some rebound in demand and debottlenecking activitieswould drive 4-5% volume growth for Novelis. We expect adjustedEBIDTA/ton for Novelis to increase from US$346/ton in FY11 toUS$359/ton in FY12 and US$368/ton in FY13. On a consolidated basis,we expect the company to witness an EBIDTA CAGR of 14.7% overFY11-13 led by higher contribution from Novelis. Earnings from Noveliswould be resilient enough to withstand any global shocks and therebyprovide downside support to the stock price. We recommend a BUYbased on our sum-of-the-parts (SOTP) 9-month fair value of Rs185.

NALCO: Risk-reward favorable; Upgrade to BUY

NALCOs stock price has halved over the last six months on account ofdepressed Q2 FY12 results and weak commodity prices. We believe thecompany has formed a bottom in terms of profitability in Q2 FY12 andthe worst is behind us. We expect margins to improve from Q2 FY12levels on the back of improved coal supply and higher exports ofalumina. We expect OPM to improve drastically from the 9.5%reported in Q2 FY12 to 21.1% in FY13. With no major capex over thenext two years, we estimate cash levels to increase from Rs56bn toRs70bn by end-FY13. Our FY13 cash levels account for 54% of thecurrent market cap and would lend support to the stock price. At theCMP of Rs51, the company is trading at 5.2x FY12 EV/EBIDTA and 4xFY13 EV/EBIDTA which is at a ~50% discount to its historic one year

forward average multiple of 10.5x. We do not see much downside fromthe current levels and upgrade the stock from Market Performer toBUY with a revised 9-month price target of Rs60.

Financial summaryHindalco NALCO

Y/e 31 Mar (Rs m) FY12E FY13E FY12E FY13E

Revenues 798,599 854,975 67,025 73,243

yoy growth (%) 10.8 7.1 12.4 9.3

OPM 11.8 12.3 20.6 21.1

Pre-exceptional PAT 31,413 33,920 10,034 11,163

Yoy growth (%) 27.9 8.0 (6.2) 11.3

EPS (Rs) 16.4 17.7 3.9 4.3P/E (x) 7.9 7.3 13.1 11.8

EV/EBIDTA (x) 5.9 5.8 5.2 4.0

ROE (%) 10.3 10.2 8.7 9.1Source: Company, India Infoline Research


2/28

Aluminium sector

Sector Repor t 2

Aluminium prices have tumbled 29%

from its highs hit earlier in the year

Aluminium has declined the leastamongst the base metals pack

50% of producers making losses atcurrent prices

We revise our aluminium pricesestimates for FY12 to US$2,310/tonand US$2,250/ton for FY13

The rupee has corrected 19% YTDagainst the dollar

Depreciating rupee to cushion the impact of lower commodity

prices Aluminium prices have tumbled from its highs hit earlier in the year(29% from peak) on worries about the strength of the global economyand thus potential industrial demand, particularly as the European

sovereign-debt crisis continues. Aluminium prices have correctedsharply to sub-US$2,000/ton from a high of US$2,800/ton hit duringthe first quarter of 2011. Structural issues like over-capacity and highinventory levels continue to remain an overhang on aluminium prices.Low economic incentives to purchase aluminium led to subduedaluminium imports from ex-China, as consumers were focussed ondestocking. In addition to this, the gradual increases of aluminiumproduction, which hit a record 45mt annualised in August, dampenedsentiments.

However, the fall in aluminium has been lower than other base metalsduring the year. The strong rise in input costs has largely contributed

to the metals outperformance in 2011. The decline in costs of rawmaterial used in aluminium manufacturing has been much lower thanthe decline in aluminium prices. Input costs have continued to rise in2011, led by shortages in bauxite, alumina and coal, especially inChina where 45% of smelting capacity is in the top quartile of theglobal cost curve and 20% use outdated technology. We estimateaverage global aluminium costs at US$2,000/ton. With LME prices nearUS$2,000/ton, we see half of the industry in red and this would lead toproduction cuts going ahead.

We believe closures do not take place overnight or even within a fewweeks of a price tumble. Since it is expensive to close down plants,producers do not want to take such steps until they are sure weak

prices will persist for a long time. It costs a lot of money to put plantson care and maintenance. Ultimately, cuts in production should helpthe market find a bottom since this means less supply. We expectprices would find a floor if prices stay lower for a longer period andproducers would find it difficult to sustain. With marginal cost beingabove current prices and demand remaining steady, we expectaluminium prices to rise in FY13 from the current level. We revise ouraluminium prices estimates for FY12 to US$2,310/ton andUS$2,250/ton for FY13.

The impact of lower commodity prices on profitability of domesticmetal producers would be cushioned by the sharp depreciation in the

rupee against the dollar (19% YTD). Indian metal producers will be atan advantage, in our view, given that most of the other majorcurrencies have remained largely flat, while the rupee has depreciatedby ~16% during the past three months. So while producers in othercountries have seen 10-15% falls in revenues, domestic producerswould see just a 1-3% fall. On account of the sharp decline in therupee against the dollar, we revise our rupee estimate to 48 in FY12and 50 in FY13.


3/28

Aluminium sector

Sector Repor t 3

Aluminium market key indicators

Aluminium price trend declined 29% from its 2011 peak

1,200

1,600

2,000

2,400

2,800

3,200

3,600

Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11

US$/ton

1,500

1,700

1,900

2,100

2,300

2,500

2,700

2,900

May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11

US$/ton

Source: Bloomberg, India Infoline Research

The decline has been the lowest compared toits base metals pack

Alumina and aluminium prices have remainedstrong over the last six months

16.4

19.617.6

26.2

19.2 20.0

-

5

10

15

20

25

30

Aluminium

Copper

Lead

Nickel

Zinc

LMEInd

%

Source: Bloomberg, CRU, India Infoline Research

Spot alumina prices in China have remainedfirm in 2011

YTD the decline in coal prices is lower thanaluminium

300

320

340

360

380

400

420

440

460

480

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

US$/ton

70

80

90

100

110

120

130

140

150

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

US$/ton



4/28

Aluminium sector

Sector Repor t 4

Global aluminium production has declined

over the last two months

led by a decline in Chinese aluminium

production

2,500

2,700

2,900

3,100

3,300

3,500

3,700

3,900

Feb-09 Oct-09 Jun-10 Feb-11 Oct-11

'000 tons

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

Jan-09 Sep-09 May-10 Jan-11 Sep-11

'000 tons


Ex-China aluminium has stayed flatglobally over the last few months

Global inventory levels have stayed higherover the last three years

1,700

1,800

1,900

2,000

2,100

2,200

2,300

Jan-09 Sep-09 May-10 Jan-11 Sep-11

'000 tons

-

1

2

3

4

5

6

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

mn tons


Aluminium market globally has stayed insurplus state for most of 2011

Amongst the commodity producing nations,the Rupee has declined the most

3.0

3.2

3.4

3.6

3.8

4.0

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

(0.2)

(0.1)

-

0.1

0.2

0.3

0.4

Supply Demand Balance

70

75

80

85

90

95

100105

110

115

120

Jan-10 May-10 Oct-10 Feb-11 Jul-11 Dec-11

India China Australia Chile



5/28

Aluminium sector

Sector Repor t 5

Macroeconomic variables

Chinas GDP grow th rate in the downwardtrend

Industrial production: Europe slowingrapidly, Japan struggling

(8)

(4)

0

4

8

12

Q1 09 Q3 09 Q1 10 Q3 10 Q1 11 Q3 11

%

US Eurozone China Japan

(20)

(10)

0

10

20

30

40

Dec-09 Jun-10 Dec-10 Jun-11

y/y%

Japan China US Eurozone


PMI s too indicate a negative outlook reaffirmed by the declining global

economic indicator

40

50

60

70

Dec-09 Jun-10 Dec-10 May-11 Nov-11

China US UK Eurozone

100

102

104

106

108

110

112

Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11

Global OECD - Leading Economic Indicator


Vehicle sales globally showing a weakness indemand

US ISM manufacturing index has managed tobuckle the downw ard trend to some extent

0

0.4

0.8

1.2

1.6

2

2.4

Dec-09 May-10 Sep-10 Jan-11 Jun-11 Oct-11

mn units

Japan China US Europe

40

50

60

70

Dec-09 May-10 Sep-10 Feb-11 Jun-11 Nov-11

US ISM Manufacturing



6/28

Hindalco Industries BUY

Novelis to drive earnings

Sector: Metals & Mining

Sensex: 16,003

CMP (Rs): 129

Target price (Rs): 185

Upside (%): 42.9

52 Week h/l (Rs): 252 / 113

Market cap (Rscr) : 24,784

6m Avg vol (000Nos): 9,184

No of o/s shares (mn): 1,915

FV (Re): 1

Bloomberg code: HNDL IB

Reuters code: HALC.BO

BSE code: 500440

NSE code: HINDALCO

Prices as on 13 Dec, 2011

Shareholding pattern

September '11 (%)

Promoters 32.1

Institutions 42.3

Non promoter corp hold 6.3

Public & others 19.3

Performance rel. to sensex

(%) 1m 3m 1yr

Hindalco 7.5 (5.2) (23.4)

HZL 10.2 (0.4) 23.9

Sterlite (8.2) (16.9) (21.2)

NALCO (7.9) (17.6) (26.5)

Share price trend

40

60

80

100

120

Dec-10 Apr-11 Aug-11 Dec-11

Hindalco Sensex

Volume CAGR at 14% over FY11-13EHindalco has embarked upon an ambitious Rs450bn expansion plan toraise its domestic aluminium capacity 3.6x and alumina 3x by FY16.The projects are running with delays of 6-9 months compared to theiroriginal schedule and we expect further slippages of 3-6 months. We

see the Mahan smelter contributing 0.1mn tons in FY13 against themanagement guidance of 0.2mn tons. We expect volume CAGR of14% over FY11-13 as expansions are back-ended.

Depreciating rupee to aid standalone margin expansionHindalcos standalone business is impacted by rising raw material andpower costs. Pressure on margins would further accentuate as thecompany would be required to buy e-auction or imported coal as theallotted mine for Mahan is awaiting clearance and tapering linkageswould be hard to come by. On the other side, the depreciation in therupee would lead to higher product prices for the company and reducethe impact of lower metal prices globally. We expect the impact ofrising input costs would be offset by strong aluminium prices (due to

rupee depreciation) and margins to expand marginally over FY11-13E.

Novelis margins to climb furtherNovelis has benefited from strong demand across various productcategories and increasing margins, given capacity constraints in therolled products market. Margins have expanded as the companymanaged to reduce energy consumption and earn better conversionpremium for its products on the back of an improving product mix. InFY13, marginal rebound in demand and debottlenecking activitieswould drive 4-5% volume growth for Novelis. We expect adjustedEBIDTA/ton to increase from US$346/ton in FY11 to US$359/ton inFY12 and US$368/ton in FY13. We believe that Novelis would be able

to meet its revised FY12 EBIDTA guidance of US$1.1-1.15bn.Novelis to drive earningsHindalco has corrected sharply on account of 1) delay in capacityexpansion plan 2) rising interest costs 3) high coal costs 4) weakcommodity prices. We believe that most of the negatives are priced in.We expect the company to witness an EBIDTA CAGR of 14.7% overFY11-13 led by higher contribution from Novelis. Earnings from Noveliswould be resilient enough to withstand any global shocks and wouldprovide downside support to the stock price. We recommend a BUYrating based on our sum-of-the-parts (SOTP) 9-month fair value ofRs185.

Financial summary Y/e 31 Mar (Rs m) FY10 FY11 FY12E FY13ERevenues 607,079 720,779 798,599 854,975

yoy growth (%) (8.0) 18.7 10.8 7.1

Operating profit 97,458 80,017 94,520 105,280

OPM (%) 16.1 11.1 11.8 12.3


Reported PAT 39,255 24,564 31,413 33,920

yoy growth (%) - (37.4) 27.9 8.0

EPS (Rs) 20.0 12.8 16.4 17.7

P/E (x) 6.5 10.1 7.9 7.3

P/BV (x) 1.1 0.9 0.8 0.7

EV/EBITDA (x) 4.8 6.2 5.9 5.8

Debt/Equity (x) 1.1 1.0 1.0 1.1

ROE (%) 20.4 9.7 10.3 10.2

ROCE (%) 14.7 10.0 10.4 10.1Source: Company, India Infoline Research


7/28

Hindalco Industries

Sector Repor t 7

Hindalco plans to raise its domesticaluminium manufacturing capacity by

3.6x over the next five years andalumina refinery capacity from thecurrent 1.5mtpa to 4.5mtpa

Over the last 10 years, Hirakudsmelter production has been rampedup in phases from 30,000tpa to161,000tpa

It is in the process of relocating itsclosed FRP plant with a capacity of150,000tpa at Rogerstone, UK toHirakud, Orissa

Aluminium business

Aluminium capacity to jump 3.6x over the next five yearsHindalco has embarked upon its ambitious expansion plan to raise itsdomestic aluminium manufacturing capacity by 3.6x over the next five

years. The expansion is carried out via a combination of variousgreenfield and brownfield projects and would lead to a total cashoutflow of Rs450bn. The company is setting up three identicalintegrated smelters with a capacity of 0.36mtpa under Mahan, Adityaand Jharkhand and is increasing its smelting capacity at Hirakud from0.15mtpa to 0.36mtpa. Hindalco is also raising its alumina refinerycapacity from the current 1.5mtpa to 4.5mtpa.

Hindalcos current aluminium operations consist of 4 bauxite mines(422mn tons), three alumina refinery (1.5mtpa), aluminium smeltersat Renukoot (345,000tpa) & Hirakud (155,000tpa) and associatedcaptive power plants of 1,109MW capacity. Its product range includes

rolled products, extrusions, foils, primary aluminium ingots, billets,wire rods and aluminium slabs. Its 345,000tpa Renukoot smeltermeets its coal requirement through linkages and third-partypurchases, while its 155,000tpa Hirakud smelter sources all its coalfrom captive mines.

Brownfield projects

Hirakud: Over the last 10 years,Hirakud smelter production has beenramped up in phases from 30,000tpa to 155,000tpa and power plantfrom 60MW to 367.5MW. In Q4 FY11, the company managed toincrease its capacity by 6,000tpa to 161,000 tons. The expansion of itssmelter to 213,000tpa and power plant expansion from 367.5MW to467MW is in progress and is expected to be commissioned by the endof FY12. After this, the company now plans to increase its smeltingcapacity further to 360,000tpa and power capacity to 967.5MW. Italready has the environmental clearance for this expansion phase.

To enhance its product portfolio in the domestic market the companyis setting up a Flat Rolled Products mill at Hirakud. It is in the processof relocating its closed FRP plant at Rogerstone, UK to Hirakud, Orissaat a capex of Rs8.5bn (US$185m). The plant is likely to becommissioned by early 2012. It will have initial capacity of150,000tpa, which will be expanded further to 285,000tpa by FY15.This plant will produce high value-added beverage can products.

Belgaum: The Belgaum unit has managed to increase its aluminacapacity from 75,000tpa to 350,000tpa and its specialty productcapacity to 138,000tpa. The company plans to increase this capacity to316,000tpa at Belgaum. On completion, this project will catapultHindalco to the position of the second-highest producer of specials inthe world. A cogen power plant (steam and power production), railwayfacility etc. are also being taken up as a part of the project tosubstantially reduce the production costs. The project details are stillnot finalized and would take some time for implementation.


8/28

Hindalco Industries

Sector Repor t 8

1.5mtpa alumina capacity at Utkal,Orissa with 90MW captive cogen plantat an initial capex of Rs76bn

We do not expect any material

contribution from the refinery in FY13

The Mahan Project is a smelter-powerplant complex that would contain a359,000tpa aluminum smelter and a900MW captive thermal power

Metal production is expected at 0.1 mntons in FY13 against the managementguidance of 0.2mn tons

Greenfield projects

Utkal Alumina International Ltd (UAI L)Hindalco is setting up 1.5mtpa alumina capacity at Utkal, Orissa with90MW captive cogen plant at an initial capex of Rs70bn. The key input

bauxite will be sourced from Baphilmali mines located 20km away fromthe project site. The output from this refinery would be sufficient tofeed alumina to the Mahan and the Aditya Smelters. The erection ofmajor equipment like boilers, evaporators and turbines has begun. Ithas already completed the hydrostatic test on its Boiler-I. Thecommissioning date for the project has been delayed from the earlierguidance of Q2 FY12 to H2 2012 (FY13) on account of some slippagein performance of certain contractors. In order to avoid furtherslippage, some of the non-performing contractors were suitablyreplaced with new contractors, who have better performance trackrecord. This resulted in an additional estimated cost of Rs6bn, as freshcontracts were at its current market price. We believe that the

commissioning of the project would be further delayed and do notexpect any material contribution from the refinery in FY13.

Mahan Aluminium ProjectThe Mahan Aluminium Project is a smelter-power plant complex thatwould contain a 359,000tpa aluminum smelter and a 900MW captivethermal power plant in Bargwan, Madhya Pradesh at an initialestimated capex of Rs92bn. The project cost has been revised upwardsby 14% to Rs105bn to build-in the increase in financing costs. It hassuccessfully raised Rs78.8bn for 13 years at an average cost of10.25% and the balance will be funded through internal accruals. Theproject has access to the Mahan coal block through a joint venturewith Essar Power. Hindalcos share in the coal block is about 3.6mtpa.

However, coal block allotted to the company earlier fell within theMoEFs No-Go areas and is awaiting forest clearance. After the MoEFwhich had framed the policy guidelines along with the Ministry of Coalaccepted that the categorisation of go and no-go did not have anylegal sanctity, the company is awaiting forest clearance approval froma Group of Ministers, which is looking into the issues related toenvironmental clearances for coal blocks. Hindalco is now trying to get

tapering linkage to compensate for the delay in mine development,which we believe is unlikely given the coal shortages in the country. Asa result, we expect the company to buy imported coal or through e-auctions to meet its demand.

Over the last one year the implementation has been slow and thecompany has been delaying its commissioning date from its initialguidance of Q2 FY12 to early 2012 (FY13). It expects metal tappingfrom the smelter by early-2012, wherein it would energize 40 pots inthe first phase. It has provided a guidance of 195,000 tons of metalproduction in FY13. The delay in commissioning of the Utkal aluminaplant and no coal linkages, we believe that the commissioning of theplant would be further delayed by a quarter. We expect metalproduction from the project to be ~0.1mn tons in FY13.

Aditya Alumina and Aluminium ProjectAditya Alumina and Aluminium Project is a greenfield integrated

aluminium complex which includes a 4.2mtpa bauxite mine, 1.5mtpaalumina refinery at Kansariguda and 359,000tpa smelter at Lapanga.The project also has a 20mtpa joint venture coal mine at Ib Valley,coal blocks Talabira II and III, Orissa, and a 900MW captive powerplant at Lapanga. The capex outflow for the refinery unit is expected at


9/28

Hindalco Industries

Sector Repor t 9

Aluminium expansion plan has been running behind schedule

Expansion projects Earlier guidance Q2 FY12 guidance Project typeCapacity

(ktpa)Capex

(Rs bn)

Brownfield

Hirakud 9

155ktpa to 161ktpa Achieved in Q4 FY11 Smelter 8

161ktpa to 213ktpa Q4 FY12 Early 2012 Smelter 52

213ktpa to 360ktpa On drawing board Smelter 147

FRP Q2 FY12 Early 2012 FRP 9

Belgaum Special Alumina project On drawing board Alumina refinery 178Greenfield

Utkal Alumina project Q2 FY12 H2 2012 Alumina refinery 1,500 76

Mahan Aluminium project Q2 FY12 Early-2012 Smelter 359 105

Aditya Aluminium project Q3 FY12 Early-2013 Smelter 359 92

Aditya Alumina project Q1 FY14 end-2014 Alumina refinery 1,500 60

Jharkhand Aluminium project Q1 FY14 2015 Smelter 359 100

Total 450Source: India Infoline Research Team

Rs60bn and that for the aluminium complex is expected to be Rs92bn.A major portion of the total land required for the project has beenacquired. Most of the important clearances have been obtained, andmajor orders have been placed for the smelter and power plant. Thealuminium project is estimated to be commissioned by early-2013 and

the alumina project by 2014.

Jharkhand Aluminium ProjectThe third Greenfield project is being setup at Sonahatu, 55km fromRanchi, Jharkhand. It would replicate the previous twp projects with analuminium capacity of 359,000tpa and a 900MW captive thermalpower plant. In a joint venture, with Tata Power, it has been allotted aCoal Mine (Tubed) in the Auranga coal fields at Jharkhand. The coalmine has a capacity of 6mtpa. Land acquisition process has alreadycommenced. Activities for getting the environmental clearance havealso started. Water allocation clearance for 55 mcm of water from theSubarnarekha basin has been obtained. Technology agreement with

Pechiney has also been inked for the aluminium smelter. The project isexpected to be commissioned in 2015.

Aluminium capacity to jump from 0.5mtpa to 1.6mtpa by FY16

0.5

0

0.5

6 0.9

2

0.9

2 1.2

8 .6

4

0.3

6

0.3

6

0.3

6

0.0

6

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Curren

t

Hira

ku

d

FY12

Ma

han

FY13

FY14

Aditya

FY15

Jhark

han

d

FY16

mtpa

Source: Company, India Infoline ResearchNote: second phase of Hirakud expansion not included as the company has notmentioned any timelines


10/28

Hindalco Industries

Sector Repor t 1 0

Volume growth to remain modest in FY12E Share of VAP to jump to 47% in FY13E

400

450

500

550

600

650

700

750

FY08 FY09 FY10 FY11 FY12E FY13E

'000 tons

(5)

0

5

10

15

20

25

30%

Production yoy chng

400

450

500

550

600

650

700

750


'000 tons

30

35

40

45

50

55%

Sales volume Share of rolled products


We believe that the jump in volumeswould be largely back-ended in FY13

We expect production volume growthto remain modest at 3% yoy in FY12to 554,000 tons and increase 26.2%yoy to 700,000 tons on account theadditional output from the newsmelters at Hirakud and Mahan

Volume CAGR at 14% over FY11-13EAs mentioned above, the expansion program has been running behindschedule by 6-9 months. As a result, we believe that the jump involumes would be largely back-ended in FY13. The company expectsthe expansion of the Hirakud smelter and the commissioning of the

Mahan smelter to be achieved by early-2012. However, we believethat it would take some time for capacities to ramp up. Thecontribution from these two would be quite lower than the guidancegiven by the company. We expect the Mahan smelter to contribute100,000 tons of aluminium metal in FY13 against the managementguidance of 195,000 tons (359,000tpa capacity). In addition to this,we expect the new Hirakud smelter to contribute 30,000 tons(52,000tpa) in FY13. The Utkal refinery is also expected to becommissioned by end-2012 (end of FY13), delaying alumina supply tothe Mahan smelter. We do not expect any contribution from the Utkalrefinery in FY13 and expect it to start production in FY14.

We expect production volume growth to remain modest at 3% yoy inFY12 to 554,000 tons as no new capacities are expected to becommissioned during the year. In FY13, we expect production volumesto increase by 26.2% yoy to 700,000 tons on account the additionaloutput from the new smelters at Hirakud and Mahan. The share ofsales of value added products of total sales is expected to increase to46% in FY13 from 43.1% in FY11 with the commissioning of the FlatRolled Products (FRP) mill in Hirakud. Alumina production is expectedto remain flat at 5.3% yoy in FY12 and 3.2% yoy in FY13 as the Utkalrefinery commissioning has been delayed. The delay in Utkal refinerywould lead to a sharp decline in external alumina sales in FY13. Weexpect alumina sales to decline from 0.31mn tons in FY11 to 0.15mntons in FY13.


11/28

Hindalco Industries

Sector Repor t 1 1

Aluminium division OPM to remain subduedover FY11-13E

EBIT/ ton to decline in FY13E on account ofhigher power costs and higher depreciation

15,000

17,500

20,000

22,500

25,000

27,500

30,000

32,500


Rs mn

0

5

10

15

20

25

30

35

40

45%

Operating profit OPM

0

10,000

20,000

30,000

40,000

50,000

60,000


Rs/ton


Hindalco meets ~30% of its coalrequirements from captive sources and

the remainder is procured from CoalIndia through linkages (~50%) and e-auction (~20%)

Due to the shortage of coal in thedomestic market we believe that thecompany would not receive anylinkage from Coal India for Mahan

High coal costs to impact operating marginsPrices of key inputs like caustic soda, carbon and coal for theproduction of alumina and aluminium have shot up over the last oneyear. Hindalco meets ~30% of its coal requirements from captivesources and the remainder is procured from Coal India through

linkages (~50%) and e-auction (~20%). Coal India has hiked coalprices by 30% to bring it inline with global prices and is expected tofollow the same in future. We estimate the recent 30% coal price hikeby Coal India and higher e-auction prices could increase Hindalcoscosts by ~US$100-115/ton. Also, higher energy costs and crudederivative products could increase Hindalcos production cost by~US40-50/ton. This would be partially offset by lower costs at Hirakudas operations have been normalized post Q2 FY12 disruption.

The Mahan smelter is expected to be commissioned in FY13. Thecompany is awaiting forest clearance approval from a Group ofMinisters, which is looking into the issues related to environmental

clearances for coal blocks. As a result, the company is trying to get tapering linkage to compensate for the delay in the commencementof the mine. However, looking at the shortage of coal in the domesticmarket we believe that the company would not receive any linkagefrom Coal India. The company would have to buy coal either throughe-auction or has to import high cost coal. This would further putpressure on the companys margins in FY13 and would negate theimpact of higher aluminium realisations. The delay in thecommissioning of the Utkal refinery would lead to lower alumina salesover the next two years. Considering the tight alumina marketglobally, the company would be losing out on the more profitablebusiness of selling alumina externally. We expect aluminium divisionoperating margin to decline from 31.5% in FY11 to 29.1% in FY13.


12/28

Hindalco Industries

Sector Repor t 1 2

Copper cathode production to remain steadyover the next two years

EBIT to surge in FY12

275

295

315

335

355

375


'000 tons

(10)

(5)

0

5

10

15%

Production yoy chng

3,000

4,000

5,000

6,000

7,000

8,000

9,000


Rs mn

3.0

3.5

4.0

4.5

5.0

5.5%

EBIT EBIT margins


Copper division includes an integrated0.5mtpa smelter at Dahej in the

Bharuch district of Gujarat

The company is a pure smelter andhence it is the copper Treatment

charges/Refining charges (Tc/Rc)margins which are relevant rather thancopper prices

We believe that TcRc margins havebottomed out in 2010 and expect it tomove northwards led by some smelterdisruptions and disciplined Chinesebuying over the last six months

We expect EBIT to increase 30% yoyin FY12 on the back of higher TcRcmargins and increase in revenue from

sales of by-products

Copper Business

Copper division to generate steady cashHindalco's copper division includes an integrated 0.5mtpa smelter atDahej in the Bharuch district of Gujarat. Along with the smelter, the

facility also comprises captive power plants, utilities and a captive jetty. The company's copper product range includes copper cathodesand continuous cast copper rods. Hindalcos jetty is located in thevicinity of the plant, with a cargo handling capacity of 4.5mtpa, whichkeeps its freight and handling costs low. Besides copper cathodes andcontinuous cast rods, Hindalco produces phosphatic fertilizer andprecious metals such as gold and silver, which are by-products of thecopper smelting process.

The company is a pure smelter and hence it is the copper Treatmentcharges/Refining charges (Tc/Rc) margins which are relevant ratherthan copper prices. In addition to the TcRc margins, revenue from sale

of by-products such as gold, silver, and phosphatic fertilizer has helpedto maintain the profitability of Hindalcos copper business even duringdecreasing TcRc.

We believe that TcRc margins have bottomed out in 2010 and expect itto move northwards led by some smelter disruptions and disciplinedChinese buying over the last six months. Copper smelters in Japan andChina have won increased treatment and refining charges from globalcopper mining companies, including BHP Billiton, for 2011. In 2011,Chinese smelters for the first time set half-year TC/RCs for termconcentrate deliveries with global miner BHP Billiton, agreeing thecharges at US$72 and 7.2 cents for the first half and US$90 and 9cents for the second half. Currently, talks are on between the Chinesesmelters and miners for 2012 contracts. Chinese smelters have askedfor TC/RCs in the range of US$60-80 and 6-8 cents for 2012.

We believe the copper business would continue to remain a consistentcash generator as the company efficiently manages costs. We expectEBIT to increase 30% yoy in FY12 on the back of higher TcRc marginsand increase in revenue from sales of by-products. In FY13, we expectEBIT growth to remain flat at 4.5% yoy on our expectations of lowerTcRc margins.


13/28

Hindalco Industries

Sector Repor t 1 3

Topline growth primarily led by higher metalprices in FY12

OPM to remain subdued over the next twoyears due to high coal costs

150

175

200

225

250

275

300


Rs bn

(10)

(5)

0

5

10

15

20

25%

Revenue yoy chng

25

30

35

40


Rs bn

10

12

14

16

18

20%



In FY12, we expect standalonerevenue to increase 11.1% yoy toRs265bn led by higher contribution

from the copper division and higheraluminium prices

We expect OPM to remain flat on a yoybasis at 13% in FY12 and 13.8% in

FY13

Standalone financialsRevenue for the standalone company is expected to rise over the nexttwo years primarily on account of higher metal prices in FY12 andcommissioning of new aluminium smelters in FY13. In FY12, we expectstandalone revenue to increase 11.1% yoy to Rs265bn led by higher

contribution from the copper division and higher aluminium prices. InFY13, the growth in topline would be curtailed at 7.3% yoy to Rs291bnas the impact of higher aluminium production would be negated bylower copper prices.

The pressure on the companys operating margins is expected toreduce on our expectation of a weaker rupee against the dollar overthe next two years. We believe the impact of higher realizations andvolumes on operating profit margin would be lowered by the jump inpower costs and rising raw material prices. We estimate the recent30% coal price hike by Coal India and higher e-auction prices coupledwith higher energy costs and crude derivative products could increase

Hindalcos production cost by ~US150/ton. We expect OPM to remainflat on a yoy basis at 13% in FY12 and 13.8% in FY13.

The company expects to spend +US$6bn over the next three years toexpand its alumina refinery and aluminium smelter capacities. Weexpect the capex for the company to increase to Rs75bn in FY12 andRs78bn in FY13 after incurring a capex of Rs60.8bn in FY11. The

expansion will be funded through a mix of debt, funds from the QIPissue in FY10 and internal accruals. We expect standalone net debt toincrease from Rs72.7bn in FY11 to Rs177bn in FY13 as the newprojects will primarily be financed through debt. We estimate net debt-to-equity ratio to increase from 0.2x in FY11 to 0.5x in FY13E as thecompany takes on more leverage to finance new projects. Thecompany has guided for a 7:3 debt-to-equity ratio for funding itsGreenfield projects.


14/28

Hindalco Industries

Sector Repor t 1 4

Quarterly revenue growth has been strongsince the last two years

Quarterly adjusted EBIDTA trend

1,800

2,000

2,200

2,400

2,600

2,800

3,000

3,200

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12

US$ mn

0

50

100

150

200

250300

350

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12

US$ mn

0

2

4

6

8

1012

14%

Adj EBIDTA EBIDTA margin


Novelis produces an estimated 19% ofthe worlds Flat Rolled AluminiumProducts (FRP) and is the leadingrolled aluminium products producer inEurope and South America

Novelis business operates on aconversion model wherein theypurchase primary aluminum andconvert it into specialized product

Adjusted operating profit on aquarterly basis increased 6x fromUS$56mn in Q4 FY09 to US$301mn inQ2 FY12

Novelis

Novelis is a global leader in aluminium rolled products and aluminiumcan recycling, with installed capacity of ~3mtpa. It produces anestimated 19% of the worlds Flat Rolled Aluminium Products (FRP)

and is the leading rolled aluminium products producer in Europe andSouth America and the number two producer in both North Americaand Asia. Novelis is globally positioned, operating in 11 countries with~11,600 employees. It produces the high quality aluminium sheet andfoil products for customers in automotive, transportation, packaging,electronics, construction and printing. It is also a global leader in therecycling of used aluminium beverage cans (UBC),wherein it recyclesover 35bn units used beverage cans annually.

Novelis business operates on a conversion model wherein theypurchase primary aluminum and convert it into specialized product.The primary raw materials used by Novelis include aluminium ingots,

recycled aluminum, sheet ingot, alloying elements and grain refiners.More than 33% of the finished products are produced through recycledmaterial. However, the companys pass through model suffered aserious dent in FY08 and FY09, when aluminium prices surgedsignificantly higher than the fixed ceiling threshold of US$1,800/ton.However, fixed ceiling price contracts are now a thing of the past andwe expect Noveliss earnings to be less volatile going forward.

Post the expiry of the fixed price ceilings contracts in December 09;the company has been able to generate steady cash flows everyquarter. Adjusted operating profit has risen sharply from US$488mn inFY09 to US$1.1bn in FY11. The company has managed to achieve thison the back of a rebound in demand for aluminium, cost cuttingmeasures and rationalization of global capacities. Adjusted operatingprofit on a quarterly basis increased 6x from US$56mn in Q4 FY09 toUS$301mn in Q2 FY12.

Novelis has benefited from strong demand across various productcategories and increasing margins given capacity constraints in therolled product market. Margins have expanded across various productcategories. The beverage can industry has undergone severalstructural changes in the past decade. On account of the consolidationin the can sheet suppliers market, players like Novelis and Alcoa aredominating the market and are able to pass on the cost push to itscustomers.


15/28

Hindalco Industries

Sector Repor t 1 5

Quarterly shipments have grown to pre-crisislevels

and adjusted EBIDTA/ ton jumped to itshighest levels in Q2 FY12

600

650

700

750

800

850

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12

' 000 tons

-

50

100

150

200

250300

350

400

450

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12

US$/ton


Product premiums have been trending higherin all the regions

Free cash flow generation has been steadysince Q3 FY10

0

400

800

1,200

1,600

2,000

Q1

FY09

Q2

FY09

Q3

FY09

Q4

FY09

Q1

FY10

Q2

FY10

Q3

FY10

Q4

FY10

Q1

FY11

Q2

FY11

Q3

FY11

Q4

FY11

Q1

FY12

Q2

FY12

US$/ton

North America Europe AsiaSouth America Total

-400

-300

-200

-100

0

100

200

300

Q1

FY09

Q2

FY09

Q3

FY09

Q4

FY09

Q1

FY10

Q2

FY10

Q3

FY10

Q4

FY10

Q1

FY11

Q2

FY11

Q3

FY11

Q4

FY11

Q1

FY12

Q2

FY12

US$ mn


Further, it has managed to reduce energy consumption at its plantsand earn better conversion premium for its products on the back of animproving product mix and demand scenario. Novelis has beenshutting down or disposing off businesses that are not adding to thecompanys bottomline. As part of these, it closed down its loss-makingcapacities such as Rogerstone (Wales, UK), Bridgnorth (UK), aluminarefinery in Brazil and the Aratu Smelter also in Brazil. The moveresulted in the laying off 10% of the companys full time employees.

On account of the product rationalization and the various measurestaken, the company was able to achieve its annual cost saving targetof US$140mn ahead of its schedule. Novelis exceeded its adjustedEBIDTA target of US$1bn in FY11. The company has also taken up

steps to avoid the discrepancies between the reported and theadjusted EBIDTA numbers. It has over the period improved its riskmanagement practices to reduce the impact of derivative positions onthe companys earnings. As a result, the company has been able togenerate steady free cash flows since Q3 FY10. Novelis has managedto generate cash flow to the tune of US$310mn in FY11 andUS$355mn in FY10 after a cash outflow of US$352mn in FY09. Evenafter incurring a capex of US$234mn in FY11, there was ampleliquidity (US$1.1bn) by the end of FY11.


16/28

Hindalco Industries

Sector Repor t 1 6

Novelis plans to increase its capacitiesby 30% to 4mtpa a total capex ofUS$1.5bn to be spent over FY12-14

FCF generated by the current business

would be used to fund the growth andmaintenance capex. The managementhas guided for an EBIDTA of US$1.1-1.15bn in FY12 and operating cashflow of US$600mn

Aggressive capex plans announcement signifies assurance infuture cash flowsAt the end of FY11, the company announced a large US$1.5bn capexplan to be spent over FY12-14. This would expand capacities acrossgeographies by 30% to 4mtpa. Novelis will increase its capex sharply

from US$234mn in FY11 to US$550-600mn in FY12E. Besides thepreviously announced expansions Novelis is now expanding itsrecycling and rolling capacities in Asia and expansion in North Americafor the auto sector. The company indicated that the increase of 1mptacapacity would include 0.75mtpa addition through capacity expansionand 0.25mtpa through de-bottlenecking activity. The capex is alignedto the growth sectors in the region with expansion in Asia and SouthAmerica focusing on the strong can body market (75%), while addingcapacity to serve the auto demand in North America (~20%).

The Free Cash Flow (FCF) generated by the current business would beused to fund the growth and maintenance capex. The management

has guided for an EBIDTA of US$1.1-1.15bn in FY12 and operatingcash flow of US$600mn. Consequently, Novelis guided that it isunlikely to pay dividends to its parent company or reduce debt overthe next 2-3 years. Novelis paid dividend of US$650mn to Hindalco asreturn of capital invested by the parent.

Novelis expansion plan

Region (US$ mn) Capacity (tpa) FY12 capex Total capex

US-debottlenecking 60

Europe-debottlenecking 90

Asia-debottlenecking 70

South America-debottlenecking 30

Total debottlenecking 250 80 80US automotive capacity increase 200 80 200

Asia mill expansion 350 85 400

Pinda (Brazil) expansion 220 180 300

Total capacity expansion 1,020 425 980Source: Company, India Infoline Research

Debt restructuring to increase capex flexibilityIn December 10, Novelis raised US$4bn of fresh debt, to prepayUS$2.5bn of existing debt and return US$1.7bn to Hindalco Industries(Hindalco) as dividend. Prepayment of the existing US$2.5bn seniornotes and secured term debt was driven by the rationale to increase

maturity tenure from ~4 years to ~7.7 years. However, the averagecost of borrowing on senior notes and term debt to increase from 5.3%to 7.4%, assuming an interest rate of 5.3% on secured term debt ofUS$1.5bn. Novelis will also have to incur a one time payment ofUS$80mn on account of premium paid towards prepayment.

Out of the US$1.7bn returned to Hindalco, we believe US$1bn could beused to retire SPV debt Hindalco took to acquire Novelis. The currentSPV structure is not tax effective, as it does not have any income toset off the interest cost incurred to finance the SPV debt. Refinancingof existing debt could also be due to the restrictions imposed by theearlier debt covenants of Novelis that did not allow for repatriation ofcapital to Hindalco. Considering the relaxation of the capital fungibilitycovenant and other restrictions, the long tenure and lack of parentsupport, we believe this interest cost is reasonable. The refinancingwould enable leveraging low-yielding cash at Novelis to part fundcapex at Hindalco and reduce high-cost debt.


17/28

Hindalco Industries

Sector Repor t 1 7

Shipments to increase 4% yoy in FY13E EBIDTA/ ton to rise to US$368 in FY13E

2,500

2,700

2,900

3,100

3,300


'000 tons

-

50

100

150

200

250

300

350

400

FY09 FY10 FY11 FY12E FY13E

US$/ton


Revenue to grow 5% yoy in FY12E EBIDTA to increase 10% over FY11-13E

8,000

9,000

10,000

11,000

12,000


US$ mn

(20)

(15)

(10)

(5)0

5

10

15

20

25%

Revenue yoy chng

-

200

400

600

800

1,000

1,200

1,400


US$ mn

0

2

4

6

8

10

12%

Adjusted EBIDTA EBIDTA Margin


Novelis has a rich product mix and haspricing power on ~70% of its productmix

We expect adjusted EBIDTA/ton toincrease from US$346/ton in FY11 to

US$359/ton in FY12 and US$368/tonin FY13

Novelis EBIDTA to rise 10% yoy over FY11-13The strong operational performance displayed by the company overthe last few quarters is expected to continue going forward led bygradual increase in volumes and higher pricing power with thecompany. The demand for aluminium is expected to remain strong

over the next two years. Novelis has a rich product mix and has pricingpower on ~70% of its product mix. The Asian and South Americanregions are expected to de-grow in FY12 on account of the floodsituation in South East Asia and lower demand in South Americanregion. We believe that majority of the expansion plan announced bythe company would impact earnings beyond FY13. Over the next twoyears, debottlenecking activities would drive the volume growth for thecompany. We expect Novelis shipments to remain flat at 0.4% yoy to3.1mn tons in FY12 due to the flood situation in South East Asia anddecline in demand from US & Europe. However, in FY13, we expectvolumes to increase 3.7% yoy led by strong volume growth in Asia.

The improvement in product mix and the companys ability to raisepremium would lead to higher margins over the next two years.Novelis has been persistently looked at reducing costs by cuttingemployee costs and by product rationalization. As a result, we expectadjusted EBIDTA/ton to increase from US$346/ton in FY11 toUS$359/ton in FY12 and US$368/ton in FY13. We believe the companywould be able to meet its revised FY12 EBIDTA guidance of US$1.1-1.15bn.


18/28

Hindalco Industries

Sector Repor t 1 8

Aditya Birla Minerals Ltd is anAustralian-based mining company with

a focus on copper production andexploration

In H1 FY12, the Nifty Copper Sulphideoperations produced 22,562 tons ofcopper in concentrate, 24% lower than29,491 tons produced in H1 FY11

We expect copper output to increase10% in H2 FY12 over H1 FY12 andthen to increase 15% yoy in FY13

Aditya Birla Minerals Ltd

Hindalco Industries owns 51% of Aditya Birla Minerals Ltd (ABML), acompany having 100% holding in Birla Nifty Pty Limited and Birla MtGordon Pty Limited located in Western Australia and Queensland,

respectively. It is an Australian-based mining company with a focus oncopper production and exploration. ABML has mining and explorationactivities focused at the Nifty copper operation in the Pilbara region,northwest Australia, and the Mt Gordon copper operation in northwestQueensland, Australia.

The Nifty copper operation consists of an underground mine, heapleach pads and a solvent extraction and electro winning (SXEW)processing plant and a copper concentrator plant. A copper sulphidedeposit is located at the lower levels of the Nifty open pit mine and anunderground mine and concentrator have been developed to mine andprocess 2.3mtpa ore from this deposit. The Mt Gordon copper

operation consists of an underground and open pit mine, a copperconcentrate plant with a milling capacity to process up to 1.5mtpa ofore to produce copper in concentrate and ferric leach plant. Niftymines recorded the highest copper production and also highest oremine processed to date. Production of copper in FY11 was at an alltime high at 59,600 tons despite lower copper grade. Mount Gordonhas received the requisite approval for mining. Net profit in FY11 wasAU$57mn against AU$61mn in FY10.

In H1 FY12, the Nifty Copper Sulphide operations produced 22,562tons of copper in concentrate, 24% lower than 29,491 tons producedin H1 FY11. The decline in production was due to the breakdown ofpower turbine, poor availability of loaders and lower grade of ore. TheMt Gordon operations resumed operations from May 11 followingreceipt of all necessary statutory approvals. In H1 FY12, it produced4,313 ton of copper in concentrate. The company has guided full yeartarget production at its Mt Gordon operations in the range of 11,000-14,000 tons and expects production to ramp up at its Nifty Coppermine. We expect copper output to increase 10% in H2 FY12 over H1FY11 and then to increase 15% yoy in FY13. The impact of higherproduction on profitability would be negated by lower copper prices inFY13.

ABML copper volumes and realization trend

40,000

50,000

60,000

70,000

80,000

90,000


US$ mn

5,000

6,000

7,000

8,000

9,000US$/ton

Copper volume Copper realisations



19/28

Hindalco Industries

Sector Repor t 1 9

Hindalco is trading at a discount to itshistorical 5-year average EV/ EBIDTA of 7.42

& its 5-year average P/ B of 1.3

0

2

4

6

8

10

12

14

16

18

Apr-06

Oct-06

Apr-07

Nov-07

May-08

Nov-08

May-09

Nov-09

May-10

Nov-10

May-11

Nov-11

EV/EBIDTA (x) Average EV/EBIDTA (x)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Apr06

Oct06

Apr07

Oct07

Apr08

Oct08

Apr09

Oct09

Apr10

Oct10

Apr11

Oct11

PB(x) AveragePB(x)


Hindalcos standalone operating profitis expected to increase on the back of

a weaker rupee in FY12 and aluminiumvolume growth in FY13

Novelis is expected to contribute~65% of the EBIDTA growth over thenext two years

Novelis to provide earnings stability over FY11-13EHindalcos standalone operating profit is expected to increase on theback of a weaker rupee in FY12 and aluminium volume growth in FY13.The growth rate has been lower as the impact of the major expansionwould be back ended in FY13. We expect further delays in

commissioning of the Mahan smelter and the Utkal alumina refinery.The companys aluminium cost of production is expected to remainhigh under Mahan as the companys coal mine is awaitingenvironmental clearance and tapering linkage would be hard to comeby. Any further delay in commissioning of the Utkal refinery wouldfurther add pressure on the companys operating margins.

However, we believe that Novelis would continue to report strongnumbers going ahead. With aluminium price ceiling contracts as thingof past and the consolidation of the industry increasing the companyspricing power, Novelis would be able to increase its margins over thenext two years. We expect Novelis would achieve US$1.1-1.15bn

EBIDTA target after achieving its EBIDTA target of US$1bn in FY11.Novelis is expected to contribute ~65% of the EBIDTA growth over thenext two years.

We value the company on a sum-of-the-parts (SOTP) basis. We valueHindalcos Indian business at 6.5x FY13E operating profit of Rs39.2bn& Rs59bn of operating profit from Novelis and ABML at 5x FY13Eoperating profit of Rs9bn and the investments at a 20% discount tothe market price. We arrive at a 9-month price target of Rs185, andrecommend a BUY rating on the stock. On our derived target price ofRs185, the company would be trading at FY13E EV/EBIDTA of 6.8x anda P/E of 10.4x. At the CMP of Rs129, Hindalco is trading at 0.8 FY12EP/B, which is a discount to the 5-year average of 1.3x.


20/28

Hindalco Industries

Sector Repor t 2 0

Financials

Income statement Y/e 31 Mar (Rs m) FY10 FY11 FY12E FY13E

Revenue 607,079 720,779 798,599 854,975

Operating profit 97,458 80,017 94,520 105,280Depreciation (27,836) (27,500) (29,534) (34,337)

Interest expense (11,041) (18,393) (20,365) (23,510)

Other income 3,227 4,309 4,736 5,927

Profit before tax 61,808 38,432 49,357 53,360

Taxes (19,319) (9,638) (13,284) (14,648)

Share of Profit in JVs (4,264) (4,230) (4,660) (4,792)

Adj. profit 38,225 24,564 31,413 33,920

Exceptional items 1,030 - - -

Net profit 39,255 24,564 31,413 33,920

Balance sheet

Y/e 31 Mar (Rs m) FY10 FY11 FY12E FY13EEquity capital 1,914 1,915 1,915 1,915

ESOP 71 75 75 75

Reserves 213,462 288,243 316,067 346,397

Net worth 215,446 290,233 318,057 348,387

Minority interest 17,372 22,169 26,580 31,121

Debt 239,987 276,920 332,946 383,152

Defer tax liab (net) 39,382 37,596 37,596 37,596

Total liabilities 512,187 626,918 715,178 800,257

Fixed assets 348,013 455,361 546,043 626,412

Investments 112,455 108,549 108,549 108,549

Net workingcapital 29,764 37,445 42,889 48,210

Inventories 112,754 140,956 156,174 167,199

Sundry debtors 65,437 79,996 88,633 94,889Other currentassets 31,739 33,334 38,334 43,334

Sundry creditors (130,996) (164,692) (182,473) (195,354)

Other curr liab (49,170) (52,149) (57,779) (61,858)

Cash 21,954 25,563 17,698 17,086

Total assets 512,187 626,918 715,178 800,257

Cash flow statementY/e 31 Mar (Rs m) FY10 FY11 FY12E FY13E

Profit before tax 61,808 38,432 49,357 53,360Depreciation 27,836 27,500 29,534 34,337

Tax paid (19,319) (9,638) (13,284) (14,648)

Working capital (21,575) (7,680) (5,444) (5,322)Operating cashflow 48,750 48,613 60,163 67,727

Capital expenditure (28,194) (134,848) (120,216) (114,706)

Free cash flow 20,555 (86,234) (60,052) (46,979)

Equity raised 20,660 53,090 - -

Investments (8,147) 3,907 - -

Debt finan/diposal (43,085) 36,937 56,027 50,206

Dividends paid (3,030) (2,872) (3,590) (3,590)

Other items 13,083 (1,218) (250) (250)Net in cash 36 3,610 (7,865) (612)

Key ratios Y/e 31 Mar FY10 FY11 FY12E FY13E

Growth matrix (%)

Revenue growth (8.0) 18.7 10.8 7.1Op profit growth 228.1 (17.9) 18.1 11.4

EBIT growth - (22.0) 22.7 10.3

Net profit growth - (35.7) 27.9 8.0

Profitability ratios (%)

OPM 16.1 11.1 11.8 12.3

EBIT margin 12.0 7.9 8.7 9.0

Net profit margin 6.3 3.4 3.9 4.0

RoCE 14.7 10.0 10.4 10.1

RoNW 20.4 9.7 10.3 10.2

RoA 5.7 3.2 3.5 3.4

Per share ratios

EPS 20.0 12.8 16.4 17.7

Dividend per share 1.6 1.5 1.9 1.9

Cash EPS 34.5 27.2 31.8 35.7

Book value per share 112.5 151.5 166.1 181.9

Valuation Ratios

P/E (x) 6.5 10.1 7.9 7.3

Price/CEPS 3.7 4.7 4.1 3.6

Price/Book (x) 1.1 0.9 0.8 0.7

EV/EBITDA (x) 4.8 6.2 5.9 5.8

Payout (%)

Dividend payout 7.9 11.7 11.4 10.6

Tax payout 31.3 25.1 26.9 27.5

Liquidity ratios

Debtor days 39 41 41 41

Inventory days 68 71 71 71

Creditor days 79 83 83 83

Leverage ratios

Interest coverage 6.6 3.1 3.4 3.3

Net debt / equity 1.0 0.9 1.0 1.1Net debt / op. profit 2.2 3.1 3.3 3.5

Du-Pont Analysis Y/e 31 Mar (Rs m) FY10 FY11 FY12E FY13E

Tax burden (x) 0.62 0.64 0.64 0.64

Interest burden (x) 0.85 0.68 0.71 0.69

EBIT margin (x) 0.12 0.08 0.09 0.09

Asset turnover (x) 0.91 0.94 0.89 0.85

Financial leverage (x) 3.58 3.04 2.96 3.02

RoE (%) 20.4 9.7 10.3 10.2


21/28

NALCO BUY

Risk Reward Favorable

Sector: Metals & Mining

Sensex: 16,003

CMP (Rs): 51

Target price (Rs): 60

Upside (%): 17.6

52 Week h/l (Rs): 120 / 48

Market cap (Rscr) : 13,144

6m Avg vol (000Nos): 294

No of o/s shares (mn): 2,577

FV (Rs): 5

Bloomberg code: NACL IB

Reuters code: NALU.BO

BSE code: 532234

NSE code: NATIONALUM

Prices as on 13 Dec, 2011

Shareholding pattern

September '11 (%)

Promoters 87.2

Institutions 9.4

Non promoter corp hold 2.5

Public & others 0.9

Performance rel. to sensex

(%) 1m 3m 1yr

NALCO (7.9) (17.6) (26.5)

HZL 10.2 (0.4) 23.9

Sterlite (8.2) (16.9) (21.2)

Hindalco 7.5 (5.2) (23.4)

Share price trend

40

60

80

100

120

140

Dec-10 Apr-11 Aug-11 Dec-11

NALCO Sensex

Alumina volumes to surge in FY13E

NALCO commissioned a 0.52mtpa alumina refinery in Q2 FY12, raisingits alumina capacity to 2.1mtpa. The company produced ~30,000-40,000tons of alumina during Q2 FY12, which is expected to increaseto 0.12mn tons in H2 FY12. We expect alumina production to increase

from 1.6mn tons in FY11 to 1.7mn tons in FY12 and 1.9mn tons inFY13. On the other hand, we expect aluminium production volumes toremain flat over the next two years due to high coal costs andlucrative alumina market. As a result of this, external sale of aluminais expected to surge to 1mn tons in FY13 from 0.7mn tons in FY11.

Operating profit to remain flat over FY11-13EOver the last two years, NALCOs OPM has been impacted by risingcoal and raw material costs. We expect this to continue in FY12 andexpect the companys OPM to shrink 456bps to 20.6%. However, inFY13, we expect raw material contract prices to be lower as spot prices

of these raw materials have declined over the last six months. NALCOspower costs have jumped as supply of linkage coal from Coal India has

reduced to sub-80% levels (90% earlier) and price hikes announced inQ4 FY11. We expect supply to decline further on account of the tightdomestic coal market. On the other hand, the pressure on marginswould be reduced due to higher share of alumina sales (revenue sharefrom 17% in FY11 to 28% in FY13). We estimate operating profit inFY13 to increase 11.8% yoy to Rs15.5bn on the back of lower rawmaterial costs and higher alumina exports.

Risk rew ard favorable; upgrade to BUY NALCOs stock price has halved over the last six months on account ofdepressed Q2 FY12 results and weak commodity prices We believe thecompany has formed a bottom in terms of profitability in Q2 FY12 and

the worst is behind us. We expect margins to improve from Q2 FY12levels on the back of improved coal supply and higher sales of aluminain the export market. We expect OPM to improve drastically from the9.5% reported in Q2 FY12 to 21.1% in FY13. With no major capex

over the next two years, we estimate cash levels to increase from thecurrent Rs56bn to Rs70bn by FY13. Our FY13 cash levels account for54% of the current market cap and would lend support to the stockprice. At the CMP of Rs51, the company is trading at 5.2x FY12EV/EBIDTA and 4x FY13 EV/EBIDTA which is at ~50% discount to itshistoric one year forward average multiple of 10.5x. We do not seemuch downside from the current levels and upgrade the stock fromMarket Performer to BUY with a 9-month price target of Rs60.

Financial summary Y/e 31 Mar (Rs m) FY10 FY11 FY12E FY13E

Revenues 50,799 59,646 67,025 73,243

yoy growth (%) (0.8) 17.4 12.4 9.3


OPM (%) 19.6 25.2 20.6 21.1


Reported PAT 8,142 10,693 10,034 11,163

yoy growth (%) (36.0) 31.3 (6.2) 11.3

EPS (Rs) 3.1 4.2 3.9 4.3

P/E (x) 16.4 12.3 13.1 11.8

P/BV (x) 1.3 1.2 1.1 1.0

EV/EBITDA (x) 9.0 5.3 5.2 4.0

ROE (%) 8.0 9.9 8.7 9.1

ROCE (%) 10.7 13.3 11.7 12.2Source: Company, India Infoline Research


22/28

NALCO

Sector Repor t 2 2

Quarterly alumina production Alumina production to jump 9% in FY13

300,000

340,000

380,000

420,000

460,000

500,000

Q2FY

09

Q3FY

09

Q4FY

09

Q1FY

10

Q2FY

10

Q3FY

10

Q4FY

10

Q1FY

11

Q2FY

11

Q3FY

11

Q4FY

11

Q1FY

12

Q2FY

12

tons

1.4

1.5

1.6

1.7

1.8

1.9

2.0

FY07 FY08 FY09 FY10 FY11 FY12E FY13E

mn tons

(10)

(5)

0

5

10

15%

Production yoy grow th


Alumina production is expected to

increase from 1.6mn tons in FY11 to1.7mn tons in FY12 and 1.9mn tons in

FY13

Aluminium production in FY12 is

estimated to decline 2% yoy in FY12and to increase 2.6% to 0.44mn tons

in FY13

Alumina volumes to surge in FY13E

NALCO currently has a production capacity of 0.46mtpa of aluminiumand 2.1mtpa for alumina. The company managed to expand itsalumina refinery capacity from 1.58mtpa to 2.1mtpa in Q2 FY12. Thecompany commissioned the 2nd phase expansion of 0.52mtpa alumina

refinery in Q2 FY12. The company managed to produce ~30,000-40,000tons of alumina during the quarter. However, no alumina wassold from the new refinery as it had to build a stock of 40,000 tons. Asper a technical requirement the company had to build stock up to aparticular level before selling the produce in the market. The saleable

product will start rolling out only in Q3 FY12 and it expects to sell30,000-60,000 tons of alumina from the new refinery in Q3 FY12. We

expect alumina production to increase from 1.6mn tons in FY11 to1.7mn tons in FY12 and 1.9mn tons in FY13. We have kept ourproduction target lower than the guidance to account for some shortfall in coal over the next two years.

On the other hand, we expect aluminium production volumes toremain flat over the next two years. Aluminium production in H1 FY12was lower by 3.4% yoy to 214,360 tons on account of coal shortage inQ2 FY12. During Q2 FY12, supply of coal from Mahanandi Coal Fields(MCL) was disrupted due to heavy rainfall in the region. NALCO

received ~70% of its coal from MCL as against the average rate of80% for the year. As a result, the company had to buy expensive

imported coal and had to draw power from the state grid. This led to asharp jump in operating costs for the company, due to which thecompany had to take shutdown of the 120 pots. There was lessproduction of metal during Q2 FY12 by ~6,000 tons because supply ofcoal was affected. The pots remain closed in October too as thecompany was building stock of coal. We expect H2 FY12 production toremain flat on a yoy basis at 220,340 tons. Aluminium production inFY12 is estimated to decline 2% yoy in FY12 and to increase 2.6% to0.44mn tons in FY13. The subdued performance in aluminiumproduction is largely due to lower availability of coal in the domestic

market.


23/28

NALCO

Sector Repor t 2 3

Quarterly aluminium production Aluminium production to remain subduedover FY11-13E

80,000

90,000

100,000

110,000

120,000

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12

tons

0.30

0.35

0.40

0.45

0.50


mn tons

(5)

0

5

10

15

20%

Production yoy grow th


Quarterly alumina sales volume Alumina sales to jump 47% over FY11-13E

0

50,000

100,000

150,000

200,000

250,000

300,000

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12

tons

0.5

0.6

0.7

0.8

0.9

1.0

1.1


mn tons

(20)

(15)

(10)

(5)

0

5

10

15

20

25%

Volume yoy grow th


Aluminium realizations to remain flat on theback of weaker rupee

Alumina realizations to strengthen on theback of tight alumina market

80,000

90,000

100,000

110,000

120,000

130,000

140,000

150,000

FY07 FY08 FY09 FY10 FY11 FY12EFY13E

Rs/ton

(20)(15)

(10)

(5)

0

5

10

15

20

25

30

35%

Aluminium realisation yoy grow th

0

5,000

10,000

15,000

20,000

25,000

FY 07 FY08 FY 09 FY10 FY11 FY 12E FY13E

Rs/ton

(40)

(30)

(20)

(10)

0

10

20

30

40%

Alumina realisation yoy grow th


Due to flat aluminium production over the next two years, external

sale of alumina is expected to surge in FY13. In H1 FY12, NALCO sold366,060 tons of alumina, 12.3% higher on a yoy basis. We expect

external sales to rise to 469,778 tons in H2 FY12 on the back ofincremental output from the new refinery. External sales of aluminaare expected to rise further in FY13 by 20% yoy to 1mn tons in FY13on our estimate of flat aluminium production.


24/28

NALCO

Sector Repor t 2 4

Raw material costs as a % of sales to decline

in FY13E

whereas power & fuel costs would continue

to trend upwards

0

2

4

6

8

10

12

14

16

18


%

10

15

20

25

30

35


%


Revenue from sale of alumina is

expected to increase from 17% inFY11 to 28% in FY13

In Q2 FY12, availability of linkage coalreduced to 70% from the average

guidance of 80%.

Power costs to increase to 32.1% in

FY12 and 33.5% in FY13

Raw material cost pressure to ease in FY13E

NALCO meets most of its raw material requirement through yearlycontracts. These contracts are generally agreed at the start of thefinancial year. For FY12, the rate at which the contracts were agreed atis quite higher than the current spot prices. The company indicated

that contract prices for raw material like caustic soda and CP cokeincreased by 30% yoy in FY12. Since spot prices of these rawmaterials have declined over the last six months and are quite belowthe contract prices, we expect FY13 contract prices to be lower inFY13. Raw material costs as a % of sales are expected to decline from

14% in FY12 to 12.4% in FY13. The decline in raw material costs isalso on account of increase in share of alumina sales of total sales in

FY13. Revenue from sale of alumina is expected to increase from 17%in FY11 to 28% in FY13.

Pow er costs would continue to impact marginsNALCO has historically been vulnerable to rising coal costs andintermittent disruptions of coal supplies from Mahanandi Coal Fields(MCL). Over the last two years, supply of linkage coal from Coal India hasbeen lower (84% vs 90% earlier) due to the tight domestic demand-

supply situation. NALCO also faces issues related to poor-quality coal. InFY12, it would be adversely impacted as linkage coal supply has reduced

further and prices have been raised ~30% in end-Feb. In Q2 FY12,availability of linkage coal reduced to 70% from the average guidance of80%. We believe supply of linkage coal would continue to decline goingforward on account of the tight coal supply situation in India. Power & fuelcosts as a % of sales increased sharply an average of 30% over the lasttwo years to 39% in Q2 FY12. We expect this cost to increase to 32.1%in FY12 and 33.5% in FY13.


25/28

NALCO

Sector Repor t 2 5

In FY13, we expect OPM to expand on

the back of lower raw material costs

and higher contribution from alumina

NALCO currently has ~Rs56bn of cash

and cash equivalent, implying

Rs21.7/share or 43% of the currentmarket cap

Operating profit to remain flat over FY11-13E

Over the last two years, NALCOs OPM has been impacted by risingcoal and raw material costs. We expect this to continue in FY12, withthe companys OPM shrinking by 456bps to 20.6% in FY12. Thepressure on margins would also be on account of rising staff costs.

Employee costs in H1 FY12 was 37% higher on a yoy basis to Rs5.8bn.We expect FY12 employee costs to increase 20% yoy to Rs11.9bnfrom Rs9.9bn in FY11. In FY13, we expect OPM to expand on the backof lower raw material costs and higher contribution from alumina. Weestimate an expansion of 47bps yoy in FY13 to 21.1% leading to an

11.8% yoy increase in operating profit. Operating profit is expected todecline by 8% yoy to Rs13.8bn and then to increase by 11.8% yoy to

Rs15.5bn.

We have not included any contribution from the captive coal mineallotted to the company. The company has been allotted the Utkal-ECoal Block with estimated reserves of around 70mn tons. The mineshall cater to the requirement of new power units commissioned overthe last two years. The project is estimated to cost Rs2.8bn and as permanagement guidance is likely to become operational by June 12.

Operating profit to stay flat at Rs15.5bn in FY13

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000


Rs mn

0

10

20

30

40

50

60

70%



Current cash and cash equivalents at 43% of market capNALCO currently has ~Rs56bn of cash and cash equivalent, implyingRs21.7/share or 43% of the current market cap. We believe that theover the next two years cash levels is expected to rise further as most

of the expansion is operational and there is no major capexannounced by the company. Over the next two years, we estimatecash & cash equivalents to increase to Rs60bn in FY12 and Rs70bn inFY13. Our FY13 cash estimate of Rs70bn would account for 54% of thecompanys market cap and would lend support to the sharp decline instock price.

To utilize its cash reserve, NALCO has signed a joint ventureagreement with Nuclear Power Corporation of India Ltd (NPCIL) forcollaboration in setting up nuclear power plants in the country. NALCOwill initially have a 29% stake in the joint venture company, which willlater be increased to 49%. The total capex for the project is estimated

at Rs114.5bn. It added that the NALCO-NPCIL joint venture will buildunits 3 and 4 at the Kakrapar plant in Gujarat, construction of whichhas already started. Current tariffs for the nuclear power assure RoE of14% even at normative PLF 68.5%. We wait for further clarity on the

JV and have not included any investments in our estimates.


26/28

NALCO

Sector Repor t 2 6

Trading at 50% discount to its historic 1-yearforward EV/ EBIDTA average of 10.5x

& below its historic 1-year forward P/ Baverage of 2.2x

0

5

10

15

20

25

Apr-06

Oct-06

Apr-07

Nov-07

May-08

Nov-08

May-09

Nov-09

May-10

Nov-10

May-11

Nov-11

EV/EBIDTA (x) Average EV/EBIDTA (x)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.04.5

Apr06

Oct06

Apr07

Oct07

Apr08

Oct08

Apr09

Oct09

Apr10

Oct10

Apr11

Oct11

PB(x) AveragePB(x)


FY13E cash & cash equivalents at 54% of current market cap

30,000

40,000

50,000

60,000

70,000

80,000


Rs mn


Risk rew ard favorable; upgrade to BUY

NALCOs stock price has corrected sharply over the last six months onaccount of weak commodity prices and subdued Q2 FY12 results. The

companys performance over the last three years has hindered by thedisruptions in coal supply from MCL. We believe that the worst is

behind us and the company has formed a bottom in terms ofprofitability in Q2 FY12. We expect margins to improve from Q2 FY12levels on the back of improved coal supply and higher sales of aluminain the export market. We expect OPM to improve drastically from the9.5% reported in Q2 FY12 to 20.6% in FY12 and 21.1% in FY13. Weestimate operating profit to decline 7.9% yoy to Rs13.8bn in FY12 andthen recover 11.8% yoy to Rs15.5bn in FY13. With no major capexover the next two years, we estimate cash levels to increase from

Rs56bn at the end of H2 FY12 to Rs70bn by FY13. Our FY13 cashlevels account for 54% of the current market cap and would lendsupport to the stock price in the near term. At the CMP of Rs51, thecompany is trading at 5.2x FY12 EV/EBIDTA and 4x FY13 EV/EBIDTA,which is at ~50% discount to its historic one year forward averagemultiple of 10.5x. We do not see much downside from the currentlevels and upgrade the stock from Market Performer to BUY with a 9-month price target of Rs60.


27/28

NALCO

Sector Repor t 2 7

Financials

Income statement

Y/e 31 Mar (Rs m) FY10 FY11 FY12E FY13E

Revenue 50,799 59,646 67,025 73,243


Depreciation (3,194) (4,301) (4,741) (4,916)

Interest expense (23) (1) 0 0

Other income 4,688 4,530 5,209 5,365


Taxes (3,406) (4,554) (4,269) (4,750)

Adj. profit 8,025 10,703 10,034 11,163

Exceptional items 117 (10) 0 0

Net profit 8,142 10,693 10,034 11,163

Balance sheet Y/e 31 Mar (Rs m) FY10 FY11 FY12E FY13E

Equity capital 6,443 12,886 12,886 12,886Reserves 97,513 98,760 106,133 114,337

Net worth 103,956 111,646 119,020 127,223

Debt 0 149 0 0

Defer tax liab (net) 6,606 6,935 6,935 6,935

Total liabilities 110,562 118,730 125,954 134,158

Fixed assets 70,797 72,371 74,194 73,279

Investments 9,868 13,317 13,317 13,317

Net working capital (1,626) (4,910) (8,032) (9,321)

Inventories 9,449 10,585 11,405 11,983

Sundry debtors 1,818 1,124 1,263 1,380

Other current assets 9,306 10,791 10,016 10,936Sundry creditors (15,885) (20,618) (22,113) (24,165)

Other curr liab (6,314) (6,792) (8,603) (9,454)

Cash 31,524 37,952 46,475 56,884

Total assets 110,562 118,730 125,954 134,158

Cash flow statementY/e 31 Mar (Rs m) FY10 FY11 FY12E FY13E


Depreciation 3,194 4,301 4,741 4,916

Tax paid (3,406) (4,554) (4,269) (4,750)

Working capital (1,108) 3,284 3,122 1,289

Optg cash flow 10,111 18,288 17,897 17,368Capital expenditure (4,994) (5,874) (6,565) (4,000)

Free cash flow 5,116 12,414 11,332 13,368

Investments (908) (3,449) - -

Debt finan/diposal - 149 (149) -

Dividends paid (1,885) (3,003) (2,660) (2,960)

Other items 510 319 - -

Net in cash 2,833 6,429 8,523 10,408

Key ratios

Y/e 31 Mar FY10 FY11 FY12E FY13E

Growth matrix (%)

Revenue growth (0.8) 17.4 12.4 9.3

Op profit growth (41.2) 50.9 (7.9) 11.8

EBIT growth (40.3) 33.2 (6.3) 11.3

Net profit growth (36.2) 33.4 (6.3) 11.3

Profitability ratios (%)

OPM 19.6 25.2 20.6 21.1

EBIT margin 22.5 25.6 21.3 21.7

Net profit margin 15.8 17.9 15.0 15.2

RoCE 10.7 13.3 11.7 12.2

RoNW 8.0 9.9 8.7 9.1

RoA 6.3 7.7 6.6 6.9

Per share ratios

EPS 3.1 4.2 3.9 4.3

Dividend per share 0.6 1.0 0.9 1.0

Cash EPS 4.4 5.8 5.7 6.2

Book value per share 40.3 43.3 46.2 49.4

Valuation Ratios

P/E (x) 3.1 4.2 3.9 4.3

Price/CEPS 11.7 8.8 8.9 8.2

Price/Book (x) 1.3 1.2 1.1 1.0

EV/EBITDA (x) 9.0 5.3 5.2 4.0

Payout (%)

Dividend payout 23.5 28.1 26.5 26.5

Tax payout 29.8 29.8 29.8 29.8

Liquidity ratios

Debtor days 13 7 7 7

Inventory days 68 65 62 60

Creditor days 114 126 120 120

Du-Pont Analysis Y/e 31 Mar (Rs m) FY10 FY11 FY12E FY13E

Tax burden (x) 0.70 0.70 0.70 0.70Interest burden (x) 1.00 1.00 1.00 1.00

EBIT margin (x) 0.23 0.26 0.21 0.22

Asset turnover (x) 0.40 0.43 0.44 0.45

Financial leverage (x) 1.27 1.29 1.31 1.32

RoE (%) 8.0 9.9 8.7 9.1


28/28

Recommendation parameters for fundamental reports:

Buy Absolute return of over +10%

Market Performer Absolute return between -10% to +10%

Sell Absolute return below -10%

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