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Hindalco: Diversification to the rescue - Views on News from Equitymaster
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Hindalco: Diversification to the rescue
May 31, 2013

Hindalco has announced its March quarter results. The company has reported consolidated topline fall of 1% YoY while the bottomline has declined 11% YoY for the full year

Performance Summary
  • Standalone topline for the quarter falls 8% YoY while bottomline falls 25% YoY mainly on account of margin compression
  • Standalone topline for the full year falls 2% YoY while bottomline suffers a 24% fall yet again on margin compression
  • Steady performance from Novelis helps restrict consolidated bottomline fall to 11% for the full year on the back of a 1% drop in topline

  Standalone Consolidated
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change FY12 FY13 Change
Net sales 76,471 69,938 -8.5% 265,968 260,569 -2.0% 808,214 801,928 -0.8%
Expenditure 67,823 63,505 -6.4% 234,920 238,532 1.5% 726,373 723,560 -0.4%
Operating profit (EBDITA) 8,648 6,432 -25.6% 31,048 22,037 -29.0% 81,840 78,368 -4.2%
EBDITA margin (%) 11.3% 9.2%   11.7% 8.5%   10.1% 9.8%  
Other income 1,605 2,312 44.1% 6,158 9,831 59.6% 7,831 10,122 29.3%
Interest (net) 801 1,577 96.9% 2,937 4,360 48.5% 17,580 20,791 18.3%
Depreciation 1,658 1,726 4.1% 6,900 7,042 2.1% 28,642 28,611 -0.1%
Profit before tax 7,794 5,442 -30.2% 27,369 20,466 -25.2% 43,449 39,088 -10.0%
Extraordinary items                  
Tax 1,395 621 -55.5% 4,998 3,474 -30.5% 7,862 8,857 12.7%
Profit after tax/(loss) 6,400 4,820 -24.7% 22,372 16,992 -24.0% 35,587 30,231 -15.1%
Share of loss of associate       - -   (496) 158  
Minority Interest       - -   2,113 (196)  
Net profit after minority interest 6,400 4,820 -24.7% 22,372 16,992 -24.0% 33,969 30,269 -10.9%
Net profit margin (%) 8.4% 6.9%   8.4% 6.5%   4.2% 3.8%  
No. of shares (m) 1,914.8 1,914.8   1,914.8 1,914.8   1,914.8 1,914.8  
Diluted earnings per share (Rs)*               15.8  
Price to earnings ratio (x)*               6.7  
(* on trailing twelve months earnings)

What has driven performance in FY13?
  • Company's standalone topline for the full year suffered a small 2% decline. Both aluminium as well as the copper segment of the company contributed to this fall. It should be noted that FY13 wasn't a particularly good year for both the commodities as their LME prices saw a decline over the previous year. Besides aluminium also saw production disruption during the first half which affected volumes.

  • In the copper segment, the small drop in revenues could be attributed to both lower volumes as well as lower realizations. The fact that rupee weakened against the dollar during the fiscal did help matters a bit.

  • On the margins front, the standalone aluminium segment of the company fared even worse, as the segment PBIT fell by a significant 49% YoY. Besides both lower volumes and realizations, what also affected the PBIT were significantly higher operating costs. Besides efficiency also suffered as volumes were lost on account of certain onetime factors

  • There was a marginal fall of 0.2% in the copper EBIT margins of the company for the full year. Unlike aluminium, neither did input prices fall as much nor were the treatment and refining charges impacted that much. Consequently, the margins remained relatively shielded

  • Coming to the consolidated performance, the 49% decline in standalone aluminium EBIT was reduced to just 2% fall as Novelis reported a steady performance. While there are no numbers given by the company, we could infer that Novelis EBIT would have come in higher as compared to last year

    Segmental break up...
      Standalone Consolidated
    Segment 4QFY12 4QFY13 Change FY12 FY13 Change FY12 FY13 Change
    Aluminium
    Revenues 24,986 23,961 -4.1% 90,412 87,790 -2.9% 621,191 622,586 0.2%
    PBIT 4,839 2,835 -41.4% 18,217 9,298 -49.0%  44,952  43,880 -2.4%
    PBIT margin 19.4% 11.8%   20.1% 10.6%   7.2% 7.0%  
    Copper
    Revenues 51,544 46,067 -10.6% 175,746 173,053 -1.5% 183,790 175,427 -4.6%
    PBIT 2,931 2,586 -11.8%  8,016 7,680 -4.2%  11,194 7,403 -33.9%
    PBIT margin 5.7% 5.6%   4.6% 4.4%   6.1% 4.2%  
    Others
    Revenues  -  -    - -   6,145 8,062 31.2%
    PBIT  -  -    - -    830 1,323 59.4%
    PBIT margin             13.5% 16.4%  
    *Excludes inter-segment and unallocated expenditure

  • While the standalone business was able to carry its poor operating performance to the bottomline level with net profits down 24% for the full year, higher interest charges took further toll on the consolidated bottomline, resulting into an 11% YoY decline

  • The company's ambitious expansion is progressing well with trial production having started at Mahan and Utkal with Aditya to follow suit in second half of the current fiscal.

What to expect?

At the current price of Rs 106, the stock trades at a book value multiple of around 0.5x its FY15 book value per share. While the performance for FY13 has been poor, especially on the standalone front, we value the company as a cyclical play and hence, it does not affect our long term valuation of the company. At the current price level, we believe that the stock provides a decent upside from a medium term perspective and hence maintain a BUY on it.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also, within your overall exposure to equities, please ensure that you broadly follow our suggested asset allocation and that no single mid cap stock comprises more than 3-4% of your portfolio.`

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