Focus on cutting debt, firm metal prices to aid Hindalco
ET Intelligence Group: With an improvement in earnings, Hindalco is expected to use a large part of its cash flow to prune debts. Also, the aluminium producer will limit its capex in the next two years.
“Our focus would be to bring down our debt-to-EBIDTA to less than 3,“ Hindalco MD Satish Pai told ET. “We also have the board approval to raise equity of up to Rs 5,000 crore, but we would be raising much less than that," he said.
The deleveraging, along with firm aluminium prices, could improve the company's fortunes over the next one year.
Hindalco's consolidated net debt is now at Rs 55,500 crore, which is expected to come down to Rs 52,000 crore by March-end. Hindalco's net debt-to EBIDTA of 4.3 should dip to 4 in the next two months. Net debt-to-EBIDTA of more than 3 is considered risky.
The EBIDTA (Earnings before interest tax and amortization) of Hindalco's Indian operations for the December quarter grew 76% and 700% in the first nine months of FY17, thanks to strong aluminium prices which rose 23% or $350 per tonne) in one year.
This is despite lower-than-expected sales for the December quarter. Sales dropped 3% over the preceding quarter due to de monetisation, leading to strong in ventory build-up. But, things have picked up in January and this should be reflected in the March numbers said Pai.
Assuming a conservative average aluminium price of $1700 per tonne (which is 10% lower than the current LME aluminium price) and a steady performance of its US subsidiary Novelis, Hindalco should achieve consolidated EBIDTA or operating profit of Rs 14,000 crore for FY18. This would mostly go in repaying debt. Hindalco's capex, unlikely to cross Rs 1,000 crore in the next one year, would be towards downstream projects and help in lowering cost.
Against an EBIDTA forecast of Rs 14,000 crore, the stock is currently trading at 5.8 times its EV (enterprise value) by EBIDTA of FY18. Historically, the scrip has traded in the range of 7 to 8 times when earnings growth has been strong.
Novelis accounts for around half of the company's revenue; its earnings are fairly stable as the US subsidiary primarily converts aluminium into beverage cans and vehicle body sheets. The company is less affected by volatility in aluminium prices.
“Our focus would be to bring down our debt-to-EBIDTA to less than 3,“ Hindalco MD Satish Pai told ET. “We also have the board approval to raise equity of up to Rs 5,000 crore, but we would be raising much less than that," he said.
The deleveraging, along with firm aluminium prices, could improve the company's fortunes over the next one year.
Hindalco's consolidated net debt is now at Rs 55,500 crore, which is expected to come down to Rs 52,000 crore by March-end. Hindalco's net debt-to EBIDTA of 4.3 should dip to 4 in the next two months. Net debt-to-EBIDTA of more than 3 is considered risky.
The EBIDTA (Earnings before interest tax and amortization) of Hindalco's Indian operations for the December quarter grew 76% and 700% in the first nine months of FY17, thanks to strong aluminium prices which rose 23% or $350 per tonne) in one year.
This is despite lower-than-expected sales for the December quarter. Sales dropped 3% over the preceding quarter due to de monetisation, leading to strong in ventory build-up. But, things have picked up in January and this should be reflected in the March numbers said Pai.
Assuming a conservative average aluminium price of $1700 per tonne (which is 10% lower than the current LME aluminium price) and a steady performance of its US subsidiary Novelis, Hindalco should achieve consolidated EBIDTA or operating profit of Rs 14,000 crore for FY18. This would mostly go in repaying debt. Hindalco's capex, unlikely to cross Rs 1,000 crore in the next one year, would be towards downstream projects and help in lowering cost.
Against an EBIDTA forecast of Rs 14,000 crore, the stock is currently trading at 5.8 times its EV (enterprise value) by EBIDTA of FY18. Historically, the scrip has traded in the range of 7 to 8 times when earnings growth has been strong.
Novelis accounts for around half of the company's revenue; its earnings are fairly stable as the US subsidiary primarily converts aluminium into beverage cans and vehicle body sheets. The company is less affected by volatility in aluminium prices.
