X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Hindalco Industries: A commodity czar - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • May 7, 2012

    Hindalco Industries: A commodity czar

    The Indian aluminium players enjoy a sustainable cost advantage due to backward integration benefits. Indian aluminium companies lie in the first or second quartile in the global cost structure. And, Hindalco Industries is one of the largest and well known companies in the industry.

    Hindalco Industries Limited, a Fortune 500 and Aditya Birla Group entity is the largest copper and second largest aluminium producers in India with a 51% and 33% market share respectively. Its aluminium production process encompasses the entire gamut of operations, from bauxite mining, alumina refining, aluminium smelting to downstream rolling, extrusions and recycling. A metals powerhouse with a consolidated FY11 turnover of about USD $15 bn, Hindalco is the world's largest aluminium rolling company and one of the biggest producers of primary aluminium in Asia. Its copper smelter is the world's largest custom smelter at a single location.

    In 2007, Hiindalco made an USD $6 bn acquisition of Novelis Inc. a world leader in aluminium rolling and can recycling. This move catapulted the company into the league of world's top 5 aluminium producers. It also enabled the company to have a global footprint in 12 countries outside India. Although the acquisition has made Hindalco the world's largest aluminium rolling company, resultant debt and Novelis depressed earnings with its can price ceiling contract and large exposure to the developed markets, remained one of the biggest overhang on Hindalco's performance till 2009. However, with the expiry of the can price ceiling contracts in 2009 and cost restructuring, Novelis has emerged as a successful acquisition for Hindalco with an improvement in profitability. Despite sales volume for Novelis still below 2008 levels, adjusted EBITDA has nearly doubled.

    The future of Indian Aluminium Industry

    India has the fifth largest bauxite reserves in the world with deposits of 3 bn tonnes. India's share in world aluminium capacity is about 3%. Indian producers are the lowest cost producers due to their captive power plants, cheap labor and proximity to supply of raw material (bauxite). The per capita consumption of aluminium in India continues to remain low at under 1 kilo gram (kg) as against 30 kg in US and Europe and 10 kg for China. Thus there is tremendous potential for growth in India.

    Over the medium term, thrust on power sector capacity expansion will spur the aluminium demand. In the long term, outlook for aluminium in India continues to remain promising. An increase in the number of potential applications for which aluminum could be used is expected to spur demand for this metal. The government's thrust on infrastructure, in itself, is a crucial growth driver in the long run. Given the metal's inherent advantages over other metals, it is increasingly replacing others, thus leading to an additional demand boost. For example, the emphasis on increasing fuel efficiency and reducing pollution is forcing quite a few automakers to replace steel with aluminium as the latter's favourable weight to strength ratio and better conductivity helps increase mileage and reduce emissions.

    Hindalco has also lined up some aggressive organic expansion plans whereby it will expand its alumina capacity to 4.5 m tonnes from current 1.5 m tonnes and aluminium capacity to 1.6 m tonnes from current 0.9 m tonnes, the last phase of which is expected to commence production by 2014. Considering the demand for aluminium is expected to grow at 6% to 8% per annum in view of the low per capita consumption in India, the capacity additions undertaken by the company will enable them to meet the growing demand. Hindalco being one of the largest producers of aluminium in India is well poised to capture the growing demand of the metal.

    Challenges

    The greatest challenge facing the industry is the continuous increase in raw material prices which are showing no signs of going down. Most input costs such as fuel oil, coal tar pitch, and caustic soda have increased along with the freight costs. Alumina costs for non integrated smelters have gone up and may increase further. Aluminium industry being a cyclical in nature depends heavily on the health of the world economy. Any slowdown in demand could have adverse effects on the profitability of the company. The European debt crisis and slowdown in world economy as well as fear of hand landing in the Chinese economy (which accounts for 40% of world aluminium demand) have already led to a decline in aluminium prices. The expansion plans of Hindalco are also facing some delays. Some of the projects are running behind schedule. This is due to delay in getting regulatory approvals. As a result the company has to incur additional cost which will put pressure on its margins in the short term.

    Should Hindalco Industries Ltd be a part of your stock portfolio?

    Hindalco's standalone business is robust being a low cost producer, with linkage for raw material and power. The company is the largest producer of aluminium and copper in India. As an investor, you have to account for the fact that this is a cyclical industry, but Hindalco is one of the best players in the sector. That means it all comes down to the price you pay. For now Hindalco does look cheap. Long term investors should buy the stock at current price.

     

     

    Equitymaster requests your view! Post a comment on "Hindalco Industries: A commodity czar". Click here!

    1 Responses to "Hindalco Industries: A commodity czar"

    S. VENKATESWARAN

    Oct 18, 2015

    At present Hindalco is not in my list of stocks. But the thought of buying it goes in my mind for quite some time.
    It is a well managed, having strong fundamentals and also having a good market share.
    I need advise from Equitymaster regarding the price

    Like 
      
    Equitymaster requests your view! Post a comment on "Hindalco Industries: A commodity czar". Click here!
     

    More Views on News

    Hindalco: Strong Performance at Operating Level (Quarterly Results Update - Detailed)

    Feb 22, 2017

    Hindalco Industries has reported a 14.5% YoY increase in the topline while the bottomline came at Rs 3.2 billion.

    Hindalco Industries: Strong Operational Performance Boosts Profitability (Quarterly Results Update - Detailed)

    Nov 30, 2016

    Hindalco Industries has reported a 1.1% YoY increase in the topline while the bottomline has accelerated by 255.4% YoY.

    Hindalco Industries: Cost Efficiency Boosts Profitability (Quarterly Results Update - Detailed)

    Aug 18, 2016

    Hindalco Industries has reported a 11.4% YoY decline in the topline while the bottomline has accelerated by 379% YoY.

    Hindalco Industries: A Stellar performance (Quarterly Results Update - Detailed)

    Jun 6, 2016

    Hindalco Industries has reported a 7.5% YoY decline in the topline while the bottomline has accelerated by 123.4% YoY.

    Hindalco Industries: Realisations Hurt Topline (Quarterly Results Update - Detailed)

    Feb 17, 2016

    Hindalco Industries has reported a 5.3% decline in topline while the bottomline has declined by 88.7%

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    HINDALCO SHARE PRICE


    Aug 18, 2017 (Close)

    TRACK HINDALCO

    • Track your investment in HINDALCO with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    HINDALCO 8-QTR ANALYSIS

    Detailed Quarterly Results With Charts

    COMPARE HINDALCO WITH

    MARKET STATS