indian share market investment tips to buy best Aluminium Stocks Hindalco

Disclaimer: Information presented on this site is a guide only. It may not necessarily be correct and is not intended to be taken as financial advice nor has it been prepared with regard to the individual investment needs and objectives or financial situation of any particular person. Stock quotes are believed to be accurate and correctly dated, but does not warrant or guarantee their accuracy or date.
Our site takes no responsibility for any investment decisions based on recommendations provided on website.

Hindalco Ltd (updated - 22 Sept 2009)
Although aluminium prices are not expected to firm up as much as copper’s, the Hindalco stock has been abig gainer over the past weeks, rising 31 per cent compared with a 7 per cent move for the Sensex. Industry watchers say there is still some amount of over-capacity, resulting in a slower recovery for aluminium prices than that of copper.

Of course, Hindalco earns realisations that are way better than what the prices on the LME suggest and that’s because it sells more than half its domestic volumes in the form of value-added products.

Analysts point out that in 2008-09, the company’s average realisations fell by less than $100 a tonne compared with a fall of $396 a tonne on the LME. The Hindalco stock has also been moving up because Novelis, an unlisted subsidiary, has recovered over the past few months with profitability per tonne in the June 2009 quarter improving significantly.

According to Macquarie Securities, Novelis returned to normalised adjusted Ebitda (earnings before interest, tax, depreciation and amortisation) per tonne of $179 in the June 2009 quarter from the low of $83 per tonne in the March 2009 quarter, driven by cost-cutting and an improved product mix.

With the company likely to sell better volumes, the brokerage believes the Ebitda per tonne could increase to $230 per tonne. What’s worrying about Hindalco is the fairly large quantum of debt of close to $4.5 billion at the consolidated level, indicating a debtequity ratio of 1.4 times. The company is looking to remedy the situation through an infusion of equity — it reportedly plans to raise around $500 million through a combination of qualified institutional placement and GDR. But then, it also has some fairly large expansion plans.

According to the management, Hindalco plans to invest close to Rs 5,600 crore this year, and around Rs 11,000 crore in 2010-11 in both greenfield and other projects. It’s therefore possible that the fresh equity being raised would result in more borrowings. Therefore, the gearing may not improve in the near term.

Moreover, the equity base will see a dilution and it is possible the earnings too could get diluted both in the current year and the next year. At the current price of Rs 138, the stock trades at 13.5 times estimated 2010-11 earnings and is expensive.
source - BS

Hindalco Ltd (updated - 03 July 2009)
Given the sharp fall in aluminium prices, it was no surprise that Hindalco turned in weak numbers for the March 2009 quarter with standalone recurring profits coming off by about 80 per cent. Given that the global demand for the metal has been weak consolidated profits (including Novelis) for 2008-09 were down 80 per cent. Novelis may have another difficult year with demand in its key markets Europe and North America, were it sells around three-fourths of its volumes, not showing signs of a revival.

Besides, the auto industry remains in a bit of aslump as does the construction industry. Indeed aluminium prices aren’t expected to firm up in the near future with inventory levels still high at around 46 days of global consumption levels.

While companies have scaled back production, industry watchers say that may not be enough for prices to harden. The management is taking several steps to tackle the situation; it plans to close down a sheet mill in the UK and may not operate a couple of mills in Canada.

Although demand in the home market is expected to look up, analysts are worried that Hindalco may slip into the red this year with revenues coming off to around Rs 48,000 crore, a drop of around 25 per cent over 2008-09.
It’s a pity the company needs to raise money at a time like this — it plans to pick up Rs 2,400 crore through a placement to institutions. But then the company’s net-debt to equity ratio is already over 100 per cent.
source - BS

However, Hindalco’s subsidiary Novelis beat the Street’s expectations for the September 2009 quarter posting a second consecutive quarter of profits. The company reported sales of $2 billion, asequential rise of 10 per cent, with aluminium shipments increasing 5 per cent quarter-on-quarter.

Most of the growth was driven by Asia and South America. The adjusted earnings before interest depreciation and tax (Ebitda) came in at $180 million, again showing a sequential increase. Analysts, however, point out that while the net earnings came in close to $ 200 million, they did include some unrealised gains on derivatives.

With Novelis on the mend and Hindalco’s stand-alone earnings seeming to have bottomed out, the company is certainly in better shape than it was six months ago. However, analysts aren’t too convinced on aluminium prices and moreover, they observe that the impending dilution will have some impact on the stock. As such, they believe the stock could be an underperformer from the current levels of Rs 135.
source - BS

Hindalco Ltd (updated - 25 Nov 2009)
Hindalco’s plan to mop up Rs 2,900 crore through a placement of shares to institutional investors is aimed at raising money at a time when investors appear to have an appetite for Indian equities.

The money may not be put to immediate use for the three greenfield projects that the company proposes to set up as the Rs 16,000 crore capital expenditure outlay will be spent over the next couple of years. However, with the stock market on a roll and foreign institutional investors buying heavily, valuations are rich and is probably a good time to cash in.

The company is reportedly issuing shares at aprice of nearly Rs 131 a share, close to the current price of Rs 135. The stock has been doing well in recent weeks and a placement at this price wouldn’t result in too much of a dilution in the equity capital.

Even if the equity is diluted by 10 per cent, it wouldn’t matter too much, say analysts, because Hindalco, (without Novelis) plans to treble aluminium capacity in a few years and that would boost earnings. While demand in the Asian and South American markets is recovering, the outlook in the Europe and North America, which accounts for around twothirds of the company’s consolidated sales, remains somewhat uncertain.

The copper business, however, seems to have performed in line with expectations. Despite a sharp fall in by-products realisation, mainly sulphuric acid prices, the operating profit grew by more than half, on a y-o-y basis. The excellent performance in the copper business would not have been possible had the company not lowered the cash cost of production by one-third and sold 15% more than what it did in the September 2008 quarter.

Going forward, the management of Hindalco has hinted that aluminium prices may not rise significantly from current levels. The treatment and refining charges (TC/RC) are also unlikely to gain any further strength. Hindalco is a standalone copper smelter and gets its share of profit in copper business from TC/RC margins.

Therefore, it is less likely that Hindalco’s absolute profit figures will rise significantly in the next two quarters unless there is sharp recovery in demand or drop in cost of production. Considering all these factors, the earnings per share (EPS), on a standalone basis, for financial year 2009-10 is expected to be Rs10-11.

At the current price level, the stock trades at a forward price-earnings multiple of close to 12, which appears to be slightly expensive.

Hindalco Ltd (updated - 24 Dec 2009)
Lower sales realisation and higher operating expenses hurt the profitability of Hindalco Industries, the aluminium and copper major, in the September quarter.
Despite strong volume growth and lower cost of production, the company’s quarterly net profit more than halved on a year-on-year (y-o-y) basis. The net profit at Rs 344 crore is below expectations; the revenue figures beat expectations though.

Hindalco’s aluminium business has performed better than its peers such as National Aluminium Company (Nalco) and Sterlite Industries. Hindalco is the lowest-cost producer of aluminium in the country. However, Hindalco, by its own standard, failed to report a good set of profit numbers.

For instance, its operating profit (profit before interest and tax) margin, in the aluminium business, at 15.6%, is the highest among its peers, but is almost half of what it was in the June 2009 quarter. This happened despite a 15% sequential rise in London Metal Exchange aluminium prices. Somehow, the company couldn’t manage its operating expenses in the aluminium business very well.