Hindalco Industries Limited

May 28, 2010

Ratings • Novelis’s results inline with expectation since company

LTP 151 Recommendation BUY was able to maintain adjusted EBITDA/tonne in the
Target 218 Risk HIGH
range of $300/tonne as guided
Bloomberg Consensus • Guided 148% higher capex for FY11 due to strong
(BUY/HOLD/SELL) 20 / 10 / 06 demand environment across the globe and segments
• Retain ‘BUY’ with target prices of Rs 218, 45% upside
Sensex Nifty BSE Metals
16,838 5,058 15,066
from CMP
Codes Novelis was able to achieve strong volume growth of 16%
BSE NSE Bloomberg Reuters YoY to 756,000 tonne, however, this is largely attributed to
500440 HINDALCO HNDL IB HALC.BO base effect, since its volume is still lower than forth quarter
volume of FY06-08. The company was also able to improve
Sensex Hindalco
its volume sequentially to the tune of 11% largely due to
52 Wk: Hi/Lo 18,048/13,220 188/68
Life High 21,207-Jan 08 228-Apr 10 seasonal effect during previous quarter. The volume growth
P/E 20.27 15.28 was largely driven by America and Europe from sequential
P/BV 3.50 1.04 perspective and Asia from last year perspective.
Result Update

Dividend Yield (%) 1.12 0.81 Higher volume enabled the company to register 16% QoQ
Mkt Cap (INR Mn) 60,225,141 288,417
surge in adjusted EBITDA to $231 mn, while it jumped over 4
Equity (INR Mn) - 1,914
times from last year due to low base. The EBITDA/tonne
boosted from $291/tonne in 3QFY10 and $81/tonne in
Share Holding Pattern % Dec-09 Mar-10 4QFY09 to $306/tonne. The management has indicated to
Foreign 35.19 39.74 maintain the EBITDA/tonne in the range of $300/tonne.
Institutions 19.42 15.64
The company is experiencing strong demand across the
Government 0.02 0.02
geography and in all verticals and this has propelled the
Corporate 4.56 4.12
Promoters 32.08 32.08 company to invest in capacity addition. The company has
Public & Others 8.74 2.81 enhanced the capex guidance from $101 mn during FY10 to
$250 mn in FY11, which comprise of $130 mn maintenance
Returns % Abs Relative to capex and $120 mn strategic capex. This would enhance its
Perf Sensex BSE Metals aluminium rolling capacity by 210,000 tonne in Brazil by
1 Month -16.62 -11.93 -0.69 2012.
3 Months -9.49 -10.01 2.01
1 Year 89.76 70.26 42.83 The strong performance from last couple of quarter helped
the company to improve its financial conditions also. The
Relative Price Performance
company improved its free cash flow from $124 mn in
250 Hindalco Sensex 3QFY10 to $213 mn during 4QFY10 and therefore it is able to
continually lower its debt liability.
200
Valuation
Hindalco is trading at a P/E of 7.4x and 6.3 x for FY11 and
FY122, while EV/EBITDA multiple stood at 5.6x and 5.1x for
150
the same period respectively. We retain ‘BUY’ with same
target price of Rs 218/share.
100 Financial Summary (Consolidated)
(INR Mn) FY2008 FY2009 FY2010 FY2011E FY2012E
50 Net Sales 596,963 654,146 616,540 750,430 807,021
May-09 Nov-09 May-10 EBITDA 62,405 25,865 80,708 91,757 99,749
Profit after MI 21,535 5,270 38,109 39,071 45,803
Analyst: Giriraj Daga
Email: giriraj@kslindia.com EPS (INR) 17.6 3.1 19.9 20.4 23.9

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This report is intellectual property of Khandwala Securities Ltd; queries on this report may be directed to Head of Research at research@kslindia.com
Khandwala Securities Limited

Result Highlights

Shipment jumps due to low base and seasonality Adjusted EBITDA/tonne

850 (000' Tonnes) 300 ($/ Tonnes)

775 225

700 150

625 75

550 0
Jun-07 Sep-08 Dec-09 Jun-07 Sep-08 Dec-09

Free Cash Flow – Improving constantly Debt Level – Consistently declining

225 ($ Mn) 3,000 ($ Mn)

180
2,875
135

90 2,750

45
2,625
0

-45 2,500
3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 Jun-07 Sep-08 Dec-09

Source: Khandwala Research, Company

Regional Volume: North America 300 ('000 Tonne) 4Q'09 1Q'10 2Q'10 3Q'10 4Q'10

and Europe witness strong growth

225

150

75

0
North America Europe Asia South America

Source: Khandwala Research, Company

Hindalco Industries Limited 2

May 28, 2010
Khandwala Securities Limited

4QFY10 Financial Results (Novelis)

Descriptions 4QFY10 4QFY09 Y-o-Y 3QFY10 Q-o-Q FY2010 FY2009 Y-o-Y
(INR Mn) Mar-10 Mar-09 % Chg. Dec-09 % Chg. Mar-10 Mar-09 % Chg.
Net Turnover 2,420 1,939 24.8 2,112 14.6 8,673 10,177 -14.8
Expenditure
Cost of goods sold 2,141 1,606 33.3 1,788 19.7 7,190 9,251 -22.3
SG & A 100 73 37.0 99 1.0 360 319 12.9
R&D Expenses 11 8 37.5 10 10.0 38 41 -7.3
Total Expenditure 2,252 1,687 33.5 1,897 18.7 7,588 9,611 -21.0

EBITDA 168 252 -33.3 215 -21.9 1,085 566 91.7

EBITDA Margin (%) 6.9 13.0 -6.1 10.2 -3.2 12.5 5.6 6.9
Depreciation 99 109 -9.2 93 6.5 384 439 -12.5
PBIT 69 143 -51.7 122 -43.4 701 127 452.0
Interest & Finance Charges 41 43 -4.7 42 -2.4 164 168 -2.4
MTM on Derivative Instruments -2 40 - -40 - -194 556 -
Impairment of Goodwill - - - - - - 1,340 -
(Gain) loss on extinguishment of debt - -122 - - - - -122 -
Restructuring Charges 7 81 -91.4 1 - 14 95 -85.3
Equity in net (income) loss of non-
3 6 -50.0 -8 - 15 172 -91.3
consolidated affiliates
Other (income) expenses, net -4 33 - -2 - -25 86 -
PBT 24 62 -61.3 129 -81.4 727 -2,168 LP
Provision (benefit) for taxes on
15 83 -81.9 48 -68.8 262 -246 -
income (loss)
Net Profit after Tax 9 -21 LP 81 -88.9 465 -1,922 LP
Minority Interest -10 5 - -13 - -60 12 -
PAT After MI -1 -16 LL 68 PL 405 -1,910 LP

EBITDA Reconciliation
Interest 41 43 -4.7 42 -2.4 164 168 -2.4
Income Tax 15 83 -81.9 48 -68.8 262 -246 -
Depreciation 99 109 -9.2 93 6.5 384 439 -12.5
Non controlling interest 10 - - 13 -23.1 60 - -
EBITDA 164 219 -25.1 264 -37.9 1,275 -1,549 -182.3

Unrealized gain (loss) on derivatives -37 145 - 62 - 578 -519 -

Impairment of Goodwill - - - - - - -1,340 -
Proportional consolidation - 122 - - - - 122 -
Restructuring charges, net -20 -16 - 2 - -51 -227 -
Other costs, net -7 -81 - -1 - -14 -95 -
Adjusted EBITDA 231 53 335.8 199 16.1 754 489 54.2
Note: LP – Loss to Profit; PL: Profit to Loss; LL – Loss to Loss

Hindalco Industries Limited 3

May 28, 2010
Khandwala Securities Limited

Financials
Profit & Loss Statement (Novelis)
Description FY2008 FY2009 FY2010 FY2011E FY2012E
(INR Mn) Mar-09 Mar-09 Mar-10 Mar-11 Mar-12
Net Turnover 11,246 10,177 8,673 11,127 12,351
Expenditure
Cost of goods sold 10,246 9,251 7,190 9,857 10,995
Selling, General and Admin Expenses 414 319 360 346 346
R&D Expenses 52 41 38 40 40
Total Expenditure 10,712 9,611 7,588 10,243 11,381
656
EBITDA 534 566 1,085 883 970
EBITDA Margin (%) 4.7 5.6 12.5 7.9 7.9
Depreciation 399 439 384 365 329
PBIT 135 127 701 519 641
Interest & Finance Charges 199 168 164 150 150
(Gain) loss on change in fair value of derive-
-42 556 -194 - -
ative instruments, net
Impairment of Goodwill - 1,340 - - -
Other 14 231 4 100 100
PBT -36 -2,168 727 269 391
Provision (benefit) for taxes on income (loss) 76 -246 262 81 117
Net Profit after Tax -112 -1,922 465 188 274
Minority Interest -4 12 -60 - -
PAT after MI -116 -1,910 405 188 274

Hindalco Industries Limited 4

May 28, 2010
Khandwala Securities Limited

Analyst Certification
Each of the analyst(s) named certify, with respect to the companies or securities they analyse
that: (1) all the views expressed in this report accurately reflect his/her/their personal views
about any and all of the subject companies and securities; and (2) no part of his/her/their
compensation was, is, or will be, directly or indirectly, related to the specific recommendations
or views expressed in this report.

KSL Ratings
Target Price refers to one year unless specified; LTP: Last Trading Price
BUY: Expected return >15%
ADD: Expected return 0-15%
REDUCE: Expected decline 0-15%
SELL: Expected decline >15%

Company Risk is based on the systematic risk of the stock. (1-year Beta)
HIGH: >1.2
MEDIUM: 0.8-1.2
LOW: < 0.8

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Sandeep Bhatkhande Research Associate Publishing sandeep@kslindia.com
Lydia Rodrigues Research Executive Data Mining lydia@kslindia.com

Hindalco Industries Limited 5

May 28, 2010
Khandwala Securities Limited

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Hindalco Industries Limited 6

May 28, 2010