Sell Hindalco Industries; target of Rs 107: Nirmal Bang

“Hindalco’s FY12 consolidated EBITDA was 4.6% above our expectation at Rs81,894mn, while PAT was 23.8% above our estimate largely due to lower tax rate and higher EBITDA. PBT was 12% higher than our estimate, while the effective tax rate for the year stood at 18.1% as compared to our estimate of 20.8% and last year’s tax rate of 25.1%. Besides this, there was a substantial increase in the leverage, with consolidated net debt/equity jumping from 0.73x to 1.02x due to increased capex as well as rupee transactions of foreign subsidiaries in a falling currency environment. A detailed analysis reveals that FY12 PAT and EBITDA has been overstated by Rs12,775mn and Rs15,512mn with the company routing certain expenses through reserves and surplus and booking some prior period income during the year. We continue to retain our Sell rating with a target price of Rs107 on Hindalco.”

“Hindalco had created business reconstruction reserve (BRR) in FY09 for adjustment of certain specified expenses. During FY12, it booked Rs5,363mn of other expenses from this reserve. Consequently, tax expense was higher by Rs359mn and PAT was up by Rs5,005mn. Hindalco had created business reconstruction reserve (BRR) in FY09 for adjustment of certain specified expenses. During FY12, it booked Rs5,363mn of other expenses from this reserve. Consequently, tax expense was higher by Rs359mn and PAT was up by Rs5,005mn. Consolidated net debt in FY12 increased from Rs213bn to Rs327bn, while standalone net debt rose from Rs36bn to Rs93bn. Standalone net fixed assets increased from Rs136bn to Rs234bn, largely driven by the capex on Utkal refinery and Mahan/Aditya aluminium units in FY12, while consolidated net fixed assets jumped from Rs327bn to Rs470bn primarily due to higher standalone capex, increased capex at Novelis and translation of foreign assets in a falling rupee environment. Goodwill on consolidation rose from Rs89bn to Rs111bn,” says Nirmal Bang research report.

Non-Institutions holding more than 90% in Indian cos

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