Aluminium sector

Bottoming out
Aluminium prices have declined 29% from its 2011 peak

2,900 US$ /t 2,700 2,500 2,300 2,100 1,900 1,700 1,500 May-10 Nov-10 May-11 Nov-11
Source: Company, India Infoline Research

however, YTD decline has been the lowest amongst the base metals pack

Depreciating rupee to cushion impact of lower commodity prices Aluminium prices have tumbled from its highs hit earlier in the year (29% from peak) on worries about the strength of the global economy and thus potential industrial demand, particularly as the European sovereign-debt crisis continues. With LME prices near US$2,000/ton, we see half of the industry in red (average global aluminium cost ~US$2,000/ton) and this would lead to production cuts going ahead. We revise our aluminium prices estimates for FY12 to US$2,310/ton and US$2,250/ton for FY13. The impact of lower commodity prices on profitability of domestic metal producers would be cushioned by the sharp depreciation in the rupee against the dollar (19% YTD). So while producers in other countries have seen 10-15% fall in revenues, domestic producers would see just a 1-3% fall. Hindalco: Novelis to drive earnings Hindalco has corrected sharply on account of 1) delay in capacity expansion plan 2) rising interest costs 3) high coal costs 4) weak commodity prices. We believe that most of the negatives are priced in. In FY13, some rebound in demand and debottlenecking activities would drive 4-5% volume growth for Novelis. We expect adjusted EBIDTA/ton for Novelis to increase from US$346/ton in FY11 to US$359/ton in FY12 and US$368/ton in FY13. On a consolidated basis, we expect the company to witness an EBIDTA CAGR of 14.7% over FY11-13 led by higher contribution from Novelis. Earnings from Novelis would be resilient enough to withstand any global shocks and thereby provide downside support to the stock price. We recommend a BUY based on our sum-of-the-parts (SOTP) 9-month fair value of Rs185. NALCO: Risk-reward favorable; Upgrade to BUY NALCOs stock price has halved over the last six months on account of depressed Q2 FY12 results and weak commodity prices. We believe the company has formed a bottom in terms of profitability in Q2 FY12 and the worst is behind us. We expect margins to improve from Q2 FY12 levels on the back of improved coal supply and higher exports of alumina. We expect OPM to improve drastically from the 9.5% reported in Q2 FY12 to 21.1% in FY13. With no major capex over the next two years, we estimate cash levels to increase from Rs56bn to Rs70bn by end-FY13. Our FY13 cash levels account for 54% of the current market cap and would lend support to the stock price. At the CMP of Rs51, the company is trading at 5.2x FY12 EV/EBIDTA and 4x FY13 EV/EBIDTA which is at a ~50% discount to its historic one year forward average multiple of 10.5x. We do not see much downside from the current levels and upgrade the stock from Market Performer to BUY with a revised 9-month price target of Rs60. Financial summary
Y/e 31 Mar (Rs m) Revenues yoy growth (%) OPM Pre-exceptional PAT Yoy growth (%) EPS (Rs) P/E (x) EV/EBIDTA (x) ROE (%) Hindalco FY12E FY13E 798,599 854,975 10.8 7.1 11.8 12.3 31,413 33,920 27.9 8.0 16.4 17.7 7.9 7.3 5.9 5.8 10.3 10.2 NALCO FY12E 67,025 12.4 20.6 10,034 (6.2) 3.9 13.1 5.2 8.7 FY13E 73,243 9.3 21.1 11,163 11.3 4.3 11.8 4.0 9.1

Aluminium

Source: Company, India Infoline Research

Decline in both the stocks has been the highest

60 50 40 30 20 10 -

49.2

48.9

43.2 22.2

16.4

BSE Metal

Aluminium

Hindalco

NALCO

Source: Company, India Infoline Research

Rupee has deprecated 19% YTD

55 50 45 40 Jan-11

Jun-11

Nov-11

Source: Company, India Infoline Research

Research Analyst
research@indiainfoline.com

Tarang Bhanushali

Sensex

LME Ind

30 25 20 15 10 5 -

%
1 6.4 1 9.6 1 7.6

26.2 1 9.2 20.0

Copper

Nickel

Lead

Zinc

Source: Company, India Infoline Research December 14, 2011

Aluminium sector

Aluminium prices have tumbled 29% from its highs hit earlier in the year

Depreciating rupee to cushion the impact of lower commodity prices Aluminium prices have tumbled from its highs hit earlier in the year (29% from peak) on worries about the strength of the global economy and thus potential industrial demand, particularly as the European sovereign-debt crisis continues. Aluminium prices have corrected sharply to sub-US$2,000/ton from a high of US$2,800/ton hit during the first quarter of 2011. Structural issues like over-capacity and high inventory levels continue to remain an overhang on aluminium prices. Low economic incentives to purchase aluminium led to subdued aluminium imports from ex-China, as consumers were focussed on destocking. In addition to this, the gradual increases of aluminium production, which hit a record 45mt annualised in August, dampened sentiments. However, the fall in aluminium has been lower than other base metals during the year. The strong rise in input costs has largely contributed to the metals outperformance in 2011. The decline in costs of raw material used in aluminium manufacturing has been much lower than the decline in aluminium prices. Input costs have continued to rise in 2011, led by shortages in bauxite, alumina and coal, especially in China where 45% of smelting capacity is in the top quartile of the global cost curve and 20% use outdated technology. We estimate average global aluminium costs at US$2,000/ton. With LME prices near US$2,000/ton, we see half of the industry in red and this would lead to production cuts going ahead. We believe closures do not take place overnight or even within a few weeks of a price tumble. Since it is expensive to close down plants, producers do not want to take such steps until they are sure weak prices will persist for a long time. It costs a lot of money to put plants on care and maintenance. Ultimately, cuts in production should help the market find a bottom since this means less supply. We expect prices would find a floor if prices stay lower for a longer period and producers would find it difficult to sustain. With marginal cost being above current prices and demand remaining steady, we expect aluminium prices to rise in FY13 from the current level. We revise our aluminium prices estimates for FY12 to US$2,310/ton and US$2,250/ton for FY13. The impact of lower commodity prices on profitability of domestic metal producers would be cushioned by the sharp depreciation in the rupee against the dollar (19% YTD). Indian metal producers will be at an advantage, in our view, given that most of the other major currencies have remained largely flat, while the rupee has depreciated by ~16% during the past three months. So while producers in other countries have seen 10-15% falls in revenues, domestic producers would see just a 1-3% fall. On account of the sharp decline in the rupee against the dollar, we revise our rupee estimate to 48 in FY12 and 50 in FY13.

Aluminium has declined the least amongst the base metals pack

50% of producers making losses at current prices

We revise our aluminium prices estimates for FY12 to US$2,310/ton and US$2,250/ton for FY13

The rupee has corrected 19% YTD against the dollar

Sector Report

Aluminium sector

Aluminium market key indicators

Aluminium price trend
3,600 US$/ton 3,200 2,800
2,300 2,700 2,500

declined 29% from its 2011 peak

2,900 US$/ton

2,400 2,000 1,600 1,200 Jan-08

2,100 1,900 1,700 1,500 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11

Oct-08

Jul-09

Apr-10

Jan-11

Oct-11

Source: Bloomberg, India Infoline Research

The decline has been the lowest compared to its base metals pack
30 25 19.6 20 15 10 5 Aluminium LME Ind Copper Nickel Lead Zinc 16.4 17.6 19.2 20.0 % 26.2

Alumina and aluminium prices have remained strong over the last six months

Source: Bloomberg, CRU, India Infoline Research

Spot alumina prices in China have remained firm in 2011

480 460 440 420 400 380 360 340 320 300 Mar-10 May-10 Mar-11 May-11 Nov-10 Nov-11 Jul-10 Jan-11 Jul-11 Sep-10 Sep-11 US$/ton

YTD the decline in coal prices is lower than aluminium

150 140 130 120 110 100 90 80 70 Mar-10 May-10 Mar-11 May-11 Nov-10 Nov-11 Jan-10 Jul-10 Jan-11 Sep-10 Jul-11 Sep-11 US$/ton

Source: Bloomberg, India Infoline Research

Sector Report

Aluminium sector

Global aluminium production has declined over the last two months
3,900 '000 tons 3,700 3,500 3,300 3,100 2,900 2,700 2,500 Feb-09

led by a decline in Chinese aluminium production

1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 Jan-09 '000 tons

Oct-09

Jun-10

Feb-11

Oct-11

Sep-09

May-10

Jan-11

Sep-11

Source: Bloomberg, India Infoline Research

Ex-China aluminium has stayed flat globally over the last few months
2,300 '000 tons 2,200 2,100 2,000 1,900

Global inventory levels have stayed higher over the last three years
6 5 4 3 2 1 mn tons

1,800 Oct-08 Oct-09 Oct-10 Apr-08 Apr-09 Apr-10 1,700 Jan-09 Sep-09 May-10 Jan-11 Sep-11 Apr-11 Oct-11 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11

Source: Bloomberg, India Infoline Research

Aluminium market globally has stayed in surplus state for most of 2011
Supply 4.0 3.8 3.6 3.4 3.2 3.0 May-10 May-11 Mar-10 Nov-10 Mar-11 Jan-10 Jan-11 Jul-10 Sep-10 Jul-11 Sep-11 Demand Balance 0.4 0.3 0.2 0.1 (0.1) (0.2)

Amongst the commodity producing nations, the Rupee has declined the most
120 115 110 105 100 95 90 85 80 75 70 Jan-10 May-10 Oct-10 Feb-11 Jul-11 Dec-11 India China Australia Chile

Source: Bloomberg, India Infoline Research

Sector Report

Aluminium sector

Macroeconomic variables
Chinas GDP growth rate in the downward trend
US 12 8 20 4 0 (4) (8) Q1 09 Q3 09 Q1 10 Q3 10 Q1 11 Q3 11 10 0 (10) (20) Dec-09 % 30 Eurozone China Japan

Industrial production: Europe slowing rapidly, Japan struggling

40 y/y% Japan China US Eurozone

Jun-10

Dec-10

Jun-11

Source: Bloomberg, India Infoline Research

PMIs too indicate a negative outlook

70 China US UK Eurozone

reaffirmed by the declining global economic indicator

112 110 Global OECD - Leading Economic Indicator

60

108 106

50

104 102

40 Dec-09

Jun-10

Dec-10

May-11

Nov-11

100 Dec-09

Apr-10

Aug-10

Dec-10

Apr-11

Aug-11

Source: Bloomberg, India Infoline Research

Vehicle sales globally showing a weakness in demand

Japan 2.4 2 1.6 1.2 0.8 0.4 0 Dec-09 mn units China US Europe

US ISM manufacturing index has managed to buckle the downward trend to some extent
70 US ISM Manufacturing

60

50

May-10

Sep-10

Jan-11

Jun-11

Oct-11

40 Dec-09

May-10

Sep-10

Feb-11

Jun-11

Nov-11

Source: Bloomberg, India Infoline Research

Sector Report

Hindalco Industries BUY

Novelis to drive earnings
Sector: Metals & Mining Sensex: CMP (Rs): Target price (Rs): Upside (%): 52 Week h/l (Rs): Market cap (Rscr) : 6m Avg vol (000Nos): No of o/s shares (mn): FV (Re): Bloomberg code: Reuters code: BSE code: NSE code:
Prices as on 13 Dec, 2011

16,003 129 185 42.9 252 / 113 24,784 9,184 1,915 1 HNDL IB HALC.BO 500440 HINDALCO

Volume CAGR at 14% over FY11-13E Hindalco has embarked upon an ambitious Rs450bn expansion plan to raise its domestic aluminium capacity 3.6x and alumina 3x by FY16. The projects are running with delays of 6-9 months compared to their original schedule and we expect further slippages of 3-6 months. We see the Mahan smelter contributing 0.1mn tons in FY13 against the management guidance of 0.2mn tons. We expect volume CAGR of 14% over FY11-13 as expansions are back-ended. Depreciating rupee to aid standalone margin expansion Hindalcos standalone business is impacted by rising raw material and power costs. Pressure on margins would further accentuate as the company would be required to buy e-auction or imported coal as the allotted mine for Mahan is awaiting clearance and tapering linkages would be hard to come by. On the other side, the depreciation in the rupee would lead to higher product prices for the company and reduce the impact of lower metal prices globally. We expect the impact of rising input costs would be offset by strong aluminium prices (due to rupee depreciation) and margins to expand marginally over FY11-13E. Novelis margins to climb further Novelis has benefited from strong demand across various product categories and increasing margins, given capacity constraints in the rolled products market. Margins have expanded as the company managed to reduce energy consumption and earn better conversion premium for its products on the back of an improving product mix. In FY13, marginal rebound in demand and debottlenecking activities would drive 4-5% volume growth for Novelis. We expect adjusted EBIDTA/ton to increase from US$346/ton in FY11 to US$359/ton in FY12 and US$368/ton in FY13. We believe that Novelis would be able to meet its revised FY12 EBIDTA guidance of US$1.1-1.15bn. Novelis to drive earnings Hindalco has corrected sharply on account of 1) delay in capacity expansion plan 2) rising interest costs 3) high coal costs 4) weak commodity prices. We believe that most of the negatives are priced in. We expect the company to witness an EBIDTA CAGR of 14.7% over FY11-13 led by higher contribution from Novelis. Earnings from Novelis would be resilient enough to withstand any global shocks and would provide downside support to the stock price. We recommend a BUY rating based on our sum-of-the-parts (SOTP) 9-month fair value of Rs185. Financial summary
Y/e 31 Mar (Rs m) Revenues yoy growth (%) Operating profit OPM (%) Pre-exceptional PAT Reported PAT yoy growth (%) EPS (Rs) P/E (x) P/BV (x) EV/EBITDA (x) Debt/Equity (x) ROE (%) ROCE (%) FY10 607,079 (8.0) 97,458 16.1 38,225 39,255 20.0 6.5 1.1 4.8 1.1 20.4 14.7 FY11 720,779 18.7 80,017 11.1 24,564 24,564 (37.4) 12.8 10.1 0.9 6.2 1.0 9.7 10.0 FY12E 798,599 10.8 94,520 11.8 31,413 31,413 27.9 16.4 7.9 0.8 5.9 1.0 10.3 10.4 FY13E 854,975 7.1 105,280 12.3 33,920 33,920 8.0 17.7 7.3 0.7 5.8 1.1 10.2 10.1

Shareholding pattern September '11 Promoters Institutions Non promoter corp hold Public & others Performance rel. to sensex (%) Hindalco HZL Sterlite NALCO 1m 7.5 10.2 (8.2) (7.9) 3m (5.2) (0.4) (16.9) (17.6) 1yr (23.4) 23.9 (21.2) (26.5) (%) 32.1 42.3 6.3 19.3

Share price trend

120 100 80 60 40 Dec-10 Hindalco Sensex

Apr-11

Aug-11

Dec-11

Source: Company, India Infoline Research

Hindalco Industries
Aluminium business
Aluminium capacity to jump 3.6x over the next five years Hindalco has embarked upon its ambitious expansion plan to raise its domestic aluminium manufacturing capacity by 3.6x over the next five years. The expansion is carried out via a combination of various greenfield and brownfield projects and would lead to a total cash outflow of Rs450bn. The company is setting up three identical integrated smelters with a capacity of 0.36mtpa under Mahan, Aditya and Jharkhand and is increasing its smelting capacity at Hirakud from 0.15mtpa to 0.36mtpa. Hindalco is also raising its alumina refinery capacity from the current 1.5mtpa to 4.5mtpa. Hindalcos current aluminium operations consist of 4 bauxite mines (422mn tons), three alumina refinery (1.5mtpa), aluminium smelters at Renukoot (345,000tpa) & Hirakud (155,000tpa) and associated captive power plants of 1,109MW capacity. Its product range includes rolled products, extrusions, foils, primary aluminium ingots, billets, wire rods and aluminium slabs. Its 345,000tpa Renukoot smelter meets its coal requirement through linkages and third-party purchases, while its 155,000tpa Hirakud smelter sources all its coal from captive mines. Brownfield projects
Over the last 10 years, Hirakud smelter production has been ramped up in phases from 30,000tpa to 161,000tpa

Hindalco plans to raise its domestic aluminium manufacturing capacity by 3.6x over the next five years and alumina refinery capacity from the current 1.5mtpa to 4.5mtpa

Hirakud: Over the last 10 years, Hirakud smelter production has been ramped up in phases from 30,000tpa to 155,000tpa and power plant from 60MW to 367.5MW. In Q4 FY11, the company managed to increase its capacity by 6,000tpa to 161,000 tons. The expansion of its smelter to 213,000tpa and power plant expansion from 367.5MW to 467MW is in progress and is expected to be commissioned by the end of FY12. After this, the company now plans to increase its smelting capacity further to 360,000tpa and power capacity to 967.5MW. It already has the environmental clearance for this expansion phase. To enhance its product portfolio in the domestic market the company is setting up a Flat Rolled Products mill at Hirakud. It is in the process of relocating its closed FRP plant at Rogerstone, UK to Hirakud, Orissa at a capex of Rs8.5bn (US$185m). The plant is likely to be commissioned by early 2012. It will have initial capacity of 150,000tpa, which will be expanded further to 285,000tpa by FY15. This plant will produce high value-added beverage can products. Belgaum: The Belgaum unit has managed to increase its alumina capacity from 75,000tpa to 350,000tpa and its specialty product capacity to 138,000tpa. The company plans to increase this capacity to 316,000tpa at Belgaum. On completion, this project will catapult Hindalco to the position of the second-highest producer of specials in the world. A cogen power plant (steam and power production), railway facility etc. are also being taken up as a part of the project to substantially reduce the production costs. The project details are still not finalized and would take some time for implementation.

It is in the process of relocating its closed FRP plant with a capacity of 150,000tpa at Rogerstone, UK to Hirakud, Orissa

Sector Report

Hindalco Industries
Greenfield projects
1.5mtpa alumina capacity at Utkal, Orissa with 90MW captive cogen plant at an initial capex of Rs76bn

We do not expect any material contribution from the refinery in FY13

Utkal Alumina International Ltd (UAIL) Hindalco is setting up 1.5mtpa alumina capacity at Utkal, Orissa with 90MW captive cogen plant at an initial capex of Rs70bn. The key input bauxite will be sourced from Baphilmali mines located 20km away from the project site. The output from this refinery would be sufficient to feed alumina to the Mahan and the Aditya Smelters. The erection of major equipment like boilers, evaporators and turbines has begun. It has already completed the hydrostatic test on its Boiler-I. The commissioning date for the project has been delayed from the earlier guidance of Q2 FY12 to H2 2012 (FY13) on account of some slippage in performance of certain contractors. In order to avoid further slippage, some of the non-performing contractors were suitably replaced with new contractors, who have better performance track record. This resulted in an additional estimated cost of Rs6bn, as fresh contracts were at its current market price. We believe that the commissioning of the project would be further delayed and do not expect any material contribution from the refinery in FY13. Mahan Aluminium Project The Mahan Aluminium Project is a smelter-power plant complex that would contain a 359,000tpa aluminum smelter and a 900MW captive thermal power plant in Bargwan, Madhya Pradesh at an initial estimated capex of Rs92bn. The project cost has been revised upwards by 14% to Rs105bn to build-in the increase in financing costs. It has successfully raised Rs78.8bn for 13 years at an average cost of 10.25% and the balance will be funded through internal accruals. The project has access to the Mahan coal block through a joint venture with Essar Power. Hindalcos share in the coal block is about 3.6mtpa. However, coal block allotted to the company earlier fell within the MoEFs No-Go areas and is awaiting forest clearance. After the MoEF which had framed the policy guidelines along with the Ministry of Coal accepted that the categorisation of go and no-go did not have any legal sanctity, the company is awaiting forest clearance approval from a Group of Ministers, which is looking into the issues related to environmental clearances for coal blocks. Hindalco is now trying to get tapering linkage to compensate for the delay in mine development, which we believe is unlikely given the coal shortages in the country. As a result, we expect the company to buy imported coal or through eauctions to meet its demand. Over the last one year the implementation has been slow and the company has been delaying its commissioning date from its initial guidance of Q2 FY12 to early 2012 (FY13). It expects metal tapping from the smelter by early-2012, wherein it would energize 40 pots in the first phase. It has provided a guidance of 195,000 tons of metal production in FY13. The delay in commissioning of the Utkal alumina plant and no coal linkages, we believe that the commissioning of the plant would be further delayed by a quarter. We expect metal production from the project to be ~0.1mn tons in FY13. Aditya Alumina and Aluminium Project Aditya Alumina and Aluminium Project is a greenfield integrated aluminium complex which includes a 4.2mtpa bauxite mine, 1.5mtpa alumina refinery at Kansariguda and 359,000tpa smelter at Lapanga. The project also has a 20mtpa joint venture coal mine at Ib Valley, coal blocks Talabira II and III, Orissa, and a 900MW captive power plant at Lapanga. The capex outflow for the refinery unit is expected at

The Mahan Project is a smelter-power plant complex that would contain a 359,000tpa aluminum smelter and a 900MW captive thermal power

Metal production is expected at 0.1 mn tons in FY13 against the management guidance of 0.2mn tons

Sector Report

Hindalco Industries
Rs60bn and that for the aluminium complex is expected to be Rs92bn. A major portion of the total land required for the project has been acquired. Most of the important clearances have been obtained, and major orders have been placed for the smelter and power plant. The aluminium project is estimated to be commissioned by early-2013 and the alumina project by 2014. Jharkhand Aluminium Project The third Greenfield project is being setup at Sonahatu, 55km from Ranchi, Jharkhand. It would replicate the previous twp projects with an aluminium capacity of 359,000tpa and a 900MW captive thermal power plant. In a joint venture, with Tata Power, it has been allotted a Coal Mine (Tubed) in the Auranga coal fields at Jharkhand. The coal mine has a capacity of 6mtpa. Land acquisition process has already commenced. Activities for getting the environmental clearance have also started. Water allocation clearance for 55 mcm of water from the Subarnarekha basin has been obtained. Technology agreement with Pechiney has also been inked for the aluminium smelter. The project is expected to be commissioned in 2015. Aluminium expansion plan has been running behind schedule
Expansion projects Brownfield Hirakud 155ktpa to 161ktpa 161ktpa to 213ktpa 213ktpa to 360ktpa FRP Belgaum Special Alumina project Greenfield Utkal Alumina project Mahan Aluminium project Aditya Aluminium project Aditya Alumina project Jharkhand Aluminium project Total Earlier guidance Q2 FY12 guidance Project type Capacity (ktpa) Capex (Rs bn) 9 Achieved in Q4 FY11 Q4 FY12 On drawing board Q2 FY12 On drawing board Q2 FY12 Q2 FY12 Q3 FY12 Q1 FY14 Q1 FY14 Early 2012 Early 2012 Smelter Smelter Smelter FRP Alumina refinery Alumina refinery Smelter Smelter Alumina refinery Smelter 8 52 147 9 178 1,500 359 359 1,500 359 76 105 92 60 100 450

H2 2012 Early-2012 Early-2013 end-2014 2015

Source: India Infoline Research Team

Aluminium capacity to jump from 0.5mtpa to 1.6mtpa by FY16

1.8 1.6 1.4 1.2 0.06 1.0 0.8 0.6 0.4 0.2 0.0 mtpa 0.36 0.36 0.36 0.92 Hirakud 0.56 0.92 1.28 Jharkhand Mahan FY12 FY13 FY14 FY15 Aditya FY16 1.64

Source: Company, India Infoline Research Note: second phase of Hirakud expansion not included as the company has not mentioned any timelines

Sector Report

Current

0.50

Hindalco Industries
Volume CAGR at 14% over FY11-13E As mentioned above, the expansion program has been running behind schedule by 6-9 months. As a result, we believe that the jump in volumes would be largely back-ended in FY13. The company expects the expansion of the Hirakud smelter and the commissioning of the Mahan smelter to be achieved by early-2012. However, we believe that it would take some time for capacities to ramp up. The contribution from these two would be quite lower than the guidance given by the company. We expect the Mahan smelter to contribute 100,000 tons of aluminium metal in FY13 against the management guidance of 195,000 tons (359,000tpa capacity). In addition to this, we expect the new Hirakud smelter to contribute 30,000 tons (52,000tpa) in FY13. The Utkal refinery is also expected to be commissioned by end-2012 (end of FY13), delaying alumina supply to the Mahan smelter. We do not expect any contribution from the Utkal refinery in FY13 and expect it to start production in FY14. We expect production volume growth to remain modest at 3% yoy in FY12 to 554,000 tons as no new capacities are expected to be commissioned during the year. In FY13, we expect production volumes to increase by 26.2% yoy to 700,000 tons on account the additional output from the new smelters at Hirakud and Mahan. The share of sales of value added products of total sales is expected to increase to 46% in FY13 from 43.1% in FY11 with the commissioning of the Flat Rolled Products (FRP) mill in Hirakud. Alumina production is expected to remain flat at 5.3% yoy in FY12 and 3.2% yoy in FY13 as the Utkal refinery commissioning has been delayed. The delay in Utkal refinery would lead to a sharp decline in external alumina sales in FY13. We expect alumina sales to decline from 0.31mn tons in FY11 to 0.15mn tons in FY13. Share of VAP to jump to 47% in FY13E
Sales volume 750 700 650 600 550 500 450 400 FY08 FY09 FY10 FY11 FY12E FY13E 35 30 45 40 '000 tons Share of rolled products % 55 50

We believe that the jump in volumes would be largely back-ended in FY13

We expect production volume growth to remain modest at 3% yoy in FY12 to 554,000 tons and increase 26.2% yoy to 700,000 tons on account the additional output from the new smelters at Hirakud and Mahan

Volume growth to remain modest in FY12E

750 700 650 600 550 500 450 400 FY08 FY09 FY10 FY11 FY12E FY13E Production '000 tons yoy chng % 30 25 20 15 10 5 0 (5)

Source: Company, India Infoline Research

Sector Report

10

Hindalco Industries
High coal costs to impact operating margins Prices of key inputs like caustic soda, carbon and coal for the production of alumina and aluminium have shot up over the last one year. Hindalco meets ~30% of its coal requirements from captive sources and the remainder is procured from Coal India through linkages (~50%) and e-auction (~20%). Coal India has hiked coal prices by 30% to bring it inline with global prices and is expected to follow the same in future. We estimate the recent 30% coal price hike by Coal India and higher e-auction prices could increase Hindalcos costs by ~US$100-115/ton. Also, higher energy costs and crude derivative products could increase Hindalcos production cost by ~US40-50/ton. This would be partially offset by lower costs at Hirakud as operations have been normalized post Q2 FY12 disruption. The Mahan smelter is expected to be commissioned in FY13. The company is awaiting forest clearance approval from a Group of Ministers, which is looking into the issues related to environmental clearances for coal blocks. As a result, the company is trying to get tapering linkage to compensate for the delay in the commencement of the mine. However, looking at the shortage of coal in the domestic market we believe that the company would not receive any linkage from Coal India. The company would have to buy coal either through e-auction or has to import high cost coal. This would further put pressure on the companys margins in FY13 and would negate the impact of higher aluminium realisations. The delay in the commissioning of the Utkal refinery would lead to lower alumina sales over the next two years. Considering the tight alumina market globally, the company would be losing out on the more profitable business of selling alumina externally. We expect aluminium division operating margin to decline from 31.5% in FY11 to 29.1% in FY13. EBIT/ton to decline in FY13E on account of higher power costs and higher depreciation
60,000 % 45 40 35 30 25 20 15 10 5 0 FY08 FY09 FY10 FY11 FY12E FY13E 50,000 40,000 30,000 20,000 10,000 0 FY08 FY09 FY10 FY11 FY12E FY13E Rs/ton

Hindalco meets ~30% of its coal requirements from captive sources and the remainder is procured from Coal India through linkages (~50%) and eauction (~20%)

Due to the shortage of coal in the domestic market we believe that the company would not receive any linkage from Coal India for Mahan

Aluminium division OPM to remain subdued over FY11-13E

Operating profit 32,500 30,000 27,500 25,000 22,500 20,000 17,500 15,000
Source: Company, India Infoline Research

OPM

Rs mn

Sector Report

11

Hindalco Industries
Copper Business
Copper division to generate steady cash Hindalco's copper division includes an integrated 0.5mtpa smelter at Dahej in the Bharuch district of Gujarat. Along with the smelter, the facility also comprises captive power plants, utilities and a captive jetty. The company's copper product range includes copper cathodes and continuous cast copper rods. Hindalcos jetty is located in the vicinity of the plant, with a cargo handling capacity of 4.5mtpa, which keeps its freight and handling costs low. Besides copper cathodes and continuous cast rods, Hindalco produces phosphatic fertilizer and precious metals such as gold and silver, which are by-products of the copper smelting process. The company is a pure smelter and hence it is the copper Treatment charges/Refining charges (Tc/Rc) margins which are relevant rather than copper prices. In addition to the TcRc margins, revenue from sale of by-products such as gold, silver, and phosphatic fertilizer has helped to maintain the profitability of Hindalcos copper business even during decreasing TcRc. We believe that TcRc margins have bottomed out in 2010 and expect it to move northwards led by some smelter disruptions and disciplined Chinese buying over the last six months. Copper smelters in Japan and China have won increased treatment and refining charges from global copper mining companies, including BHP Billiton, for 2011. In 2011, Chinese smelters for the first time set half-year TC/RCs for term concentrate deliveries with global miner BHP Billiton, agreeing the charges at US$72 and 7.2 cents for the first half and US$90 and 9 cents for the second half. Currently, talks are on between the Chinese smelters and miners for 2012 contracts. Chinese smelters have asked for TC/RCs in the range of US$60-80 and 6-8 cents for 2012. EBIT to surge in FY12
EBIT Rs mn EBIT margins %

Copper division includes an integrated 0.5mtpa smelter at Dahej in the Bharuch district of Gujarat

The company is a pure smelter and hence it is the copper Treatment charges/Refining charges (Tc/Rc) margins which are relevant rather than copper prices

We believe that TcRc margins have bottomed out in 2010 and expect it to move northwards led by some smelter disruptions and disciplined Chinese buying over the last six months

Copper cathode production to remain steady over the next two years
375 355 335 315 295 275 FY08 FY09 FY10 FY11 FY12E FY13E
Source: Company, India Infoline Research

Production '000 tons

yoy chng %

15 10 5 0 (5) (10)

9,000 8,000 7,000 6,000 5,000 4,000 3,000

5.5 5.0 4.5 4.0 3.5 3.0

FY08

FY09

FY10

FY11

FY12E FY13E

We expect EBIT to increase 30% yoy in FY12 on the back of higher TcRc margins and increase in revenue from sales of by-products

We believe the copper business would continue to remain a consistent cash generator as the company efficiently manages costs. We expect EBIT to increase 30% yoy in FY12 on the back of higher TcRc margins and increase in revenue from sales of by-products. In FY13, we expect EBIT growth to remain flat at 4.5% yoy on our expectations of lower TcRc margins.

Sector Report

12

Hindalco Industries
Standalone financials Revenue for the standalone company is expected to rise over the next two years primarily on account of higher metal prices in FY12 and commissioning of new aluminium smelters in FY13. In FY12, we expect standalone revenue to increase 11.1% yoy to Rs265bn led by higher contribution from the copper division and higher aluminium prices. In FY13, the growth in topline would be curtailed at 7.3% yoy to Rs291bn as the impact of higher aluminium production would be negated by lower copper prices. The pressure on the companys operating margins is expected to reduce on our expectation of a weaker rupee against the dollar over the next two years. We believe the impact of higher realizations and volumes on operating profit margin would be lowered by the jump in power costs and rising raw material prices. We estimate the recent 30% coal price hike by Coal India and higher e-auction prices coupled with higher energy costs and crude derivative products could increase Hindalcos production cost by ~US150/ton. We expect OPM to remain flat on a yoy basis at 13% in FY12 and 13.8% in FY13. OPM to remain subdued over the next two years due to high coal costs
40 Operating profit Rs bn OPM % 20 18 35 16 14 12 25 FY08 FY09 FY10 FY11 FY12E FY13E 10

In FY12, we expect standalone revenue to increase 11.1% yoy to Rs265bn led by higher contribution from the copper division and higher aluminium prices

We expect OPM to remain flat on a yoy basis at 13% in FY12 and 13.8% in FY13

Topline growth primarily led by higher metal prices in FY12

300 275 250 225 200 175 150 FY08 FY09 FY10 FY11 FY12E FY13E Revenue Rs bn yoy chng % 25 20 15 10 5 0 (5) (10)

30

Source: Company, India Infoline Research

The company expects to spend +US$6bn over the next three years to expand its alumina refinery and aluminium smelter capacities. We expect the capex for the company to increase to Rs75bn in FY12 and Rs78bn in FY13 after incurring a capex of Rs60.8bn in FY11. The expansion will be funded through a mix of debt, funds from the QIP issue in FY10 and internal accruals. We expect standalone net debt to increase from Rs72.7bn in FY11 to Rs177bn in FY13 as the new projects will primarily be financed through debt. We estimate net debtto-equity ratio to increase from 0.2x in FY11 to 0.5x in FY13E as the company takes on more leverage to finance new projects. The company has guided for a 7:3 debt-to-equity ratio for funding its Greenfield projects.

Sector Report

13

Hindalco Industries
Novelis
Novelis is a global leader in aluminium rolled products and aluminium can recycling, with installed capacity of ~3mtpa. It produces an estimated 19% of the worlds Flat Rolled Aluminium Products (FRP) and is the leading rolled aluminium products producer in Europe and South America and the number two producer in both North America and Asia. Novelis is globally positioned, operating in 11 countries with ~11,600 employees. It produces the high quality aluminium sheet and foil products for customers in automotive, transportation, packaging, electronics, construction and printing. It is also a global leader in the recycling of used aluminium beverage cans (UBC), wherein it recycles over 35bn units used beverage cans annually. Novelis business operates on a conversion model wherein they purchase primary aluminum and convert it into specialized product. The primary raw materials used by Novelis include aluminium ingots, recycled aluminum, sheet ingot, alloying elements and grain refiners. More than 33% of the finished products are produced through recycled material. However, the companys pass through model suffered a serious dent in FY08 and FY09, when aluminium prices surged significantly higher than the fixed ceiling threshold of US$1,800/ton. However, fixed ceiling price contracts are now a thing of the past and we expect Noveliss earnings to be less volatile going forward. Quarterly adjusted EBIDTA trend
Adj EBIDTA US$ mn EBIDTA margin %

Novelis produces an estimated 19% of the worlds Flat Rolled Aluminium Products (FRP) and is the leading rolled aluminium products producer in Europe and South America

Novelis business operates on a conversion model wherein they purchase primary aluminum and convert it into specialized product

Quarterly revenue growth has been strong since the last two years
3,200 3,000 2,800 2,600 2,400 2,200 2,000 1,800
Q1 FY09 Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12

US$ mn

350 300 250 200 150 100 50 0

14 12 10 8 6 4 2 0

Q1 FY09

Q2 FY09

Q3 FY09

Q4 FY09

Q1 FY10

Q2 FY10

Q3 FY10

Q4 FY10

Q1 FY11

Q2 FY11

Q3 FY11

Q4 FY11

Q1 FY12

Source: Company, India Infoline Research

Adjusted operating profit on a quarterly basis increased 6x from US$56mn in Q4 FY09 to US$301mn in Q2 FY12

Post the expiry of the fixed price ceilings contracts in December 09; the company has been able to generate steady cash flows every quarter. Adjusted operating profit has risen sharply from US$488mn in FY09 to US$1.1bn in FY11. The company has managed to achieve this on the back of a rebound in demand for aluminium, cost cutting measures and rationalization of global capacities. Adjusted operating profit on a quarterly basis increased 6x from US$56mn in Q4 FY09 to US$301mn in Q2 FY12. Novelis has benefited from strong demand across various product categories and increasing margins given capacity constraints in the rolled product market. Margins have expanded across various product categories. The beverage can industry has undergone several structural changes in the past decade. On account of the consolidation in the can sheet suppliers market, players like Novelis and Alcoa are dominating the market and are able to pass on the cost push to its customers.

Sector Report

Q2 FY12

14

Hindalco Industries
Quarterly shipments have grown to pre-crisis levels
850 800 750 700 650 600 Q1 FY09 Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 ' 000 tons

and adjusted EBIDTA/ton jumped to its highest levels in Q2 FY12

450 400 350 300 250 200 150 100 50 Q1 FY09 Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q1 FY12 Q2 FY12 Q2 FY12 US$/ton

Source: Company, India Infoline Research

Further, it has managed to reduce energy consumption at its plants and earn better conversion premium for its products on the back of an improving product mix and demand scenario. Novelis has been shutting down or disposing off businesses that are not adding to the companys bottomline. As part of these, it closed down its loss-making capacities such as Rogerstone (Wales, UK), Bridgnorth (UK), alumina refinery in Brazil and the Aratu Smelter also in Brazil. The move resulted in the laying off 10% of the companys full time employees. On account of the product rationalization and the various measures taken, the company was able to achieve its annual cost saving target of US$140mn ahead of its schedule. Novelis exceeded its adjusted EBIDTA target of US$1bn in FY11. The company has also taken up steps to avoid the discrepancies between the reported and the adjusted EBIDTA numbers. It has over the period improved its risk management practices to reduce the impact of derivative positions on the companys earnings. As a result, the company has been able to generate steady free cash flows since Q3 FY10. Novelis has managed to generate cash flow to the tune of US$310mn in FY11 and US$355mn in FY10 after a cash outflow of US$352mn in FY09. Even after incurring a capex of US$234mn in FY11, there was ample liquidity (US$1.1bn) by the end of FY11. Product premiums have been trending higher in all the regions
2,000 1,600 1,200 800 400 0 Q1 FY09 Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 North America South America US$/ton Europe Total Asia

Free cash flow generation has been steady since Q3 FY10

300 200 100 0 -100 -200 -300 -400 Q1 FY09 Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 US$ mn

Source: Company, India Infoline Research

Sector Report

15

Hindalco Industries
Aggressive capex plans announcement signifies assurance in future cash flows At the end of FY11, the company announced a large US$1.5bn capex plan to be spent over FY12-14. This would expand capacities across geographies by 30% to 4mtpa. Novelis will increase its capex sharply from US$234mn in FY11 to US$550-600mn in FY12E. Besides the previously announced expansions Novelis is now expanding its recycling and rolling capacities in Asia and expansion in North America for the auto sector. The company indicated that the increase of 1mpta capacity would include 0.75mtpa addition through capacity expansion and 0.25mtpa through de-bottlenecking activity. The capex is aligned to the growth sectors in the region with expansion in Asia and South America focusing on the strong can body market (75%), while adding capacity to serve the auto demand in North America (~20%). The Free Cash Flow (FCF) generated by the current business would be used to fund the growth and maintenance capex. The management has guided for an EBIDTA of US$1.1-1.15bn in FY12 and operating cash flow of US$600mn. Consequently, Novelis guided that it is unlikely to pay dividends to its parent company or reduce debt over the next 2-3 years. Novelis paid dividend of US$650mn to Hindalco as return of capital invested by the parent. Novelis expansion plan
Region (US$ mn) US-debottlenecking Europe-debottlenecking Asia-debottlenecking South America-debottlenecking Total debottlenecking US automotive capacity increase Asia mill expansion Pinda (Brazil) expansion Total capacity expansion Capacity (tpa) 60 90 70 30 250 200 350 220 1,020 FY12 capex Total capex

Novelis plans to increase its capacities by 30% to 4mtpa a total capex of US$1.5bn to be spent over FY12-14

FCF generated by the current business would be used to fund the growth and maintenance capex. The management has guided for an EBIDTA of US$1.11.15bn in FY12 and operating cash flow of US$600mn

80 80 85 180 425

80 200 400 300 980

Source: Company, India Infoline Research

Debt restructuring to increase capex flexibility In December 10, Novelis raised US$4bn of fresh debt, to prepay US$2.5bn of existing debt and return US$1.7bn to Hindalco Industries (Hindalco) as dividend. Prepayment of the existing US$2.5bn senior notes and secured term debt was driven by the rationale to increase maturity tenure from ~4 years to ~7.7 years. However, the average cost of borrowing on senior notes and term debt to increase from 5.3% to 7.4%, assuming an interest rate of 5.3% on secured term debt of US$1.5bn. Novelis will also have to incur a one time payment of US$80mn on account of premium paid towards prepayment. Out of the US$1.7bn returned to Hindalco, we believe US$1bn could be used to retire SPV debt Hindalco took to acquire Novelis. The current SPV structure is not tax effective, as it does not have any income to set off the interest cost incurred to finance the SPV debt. Refinancing of existing debt could also be due to the restrictions imposed by the earlier debt covenants of Novelis that did not allow for repatriation of capital to Hindalco. Considering the relaxation of the capital fungibility covenant and other restrictions, the long tenure and lack of parent support, we believe this interest cost is reasonable. The refinancing would enable leveraging low-yielding cash at Novelis to part fund capex at Hindalco and reduce high-cost debt.
Sector Report

16

Hindalco Industries
Novelis EBIDTA to rise 10% yoy over FY11-13 The strong operational performance displayed by the company over the last few quarters is expected to continue going forward led by gradual increase in volumes and higher pricing power with the company. The demand for aluminium is expected to remain strong over the next two years. Novelis has a rich product mix and has pricing power on ~70% of its product mix. The Asian and South American regions are expected to de-grow in FY12 on account of the flood situation in South East Asia and lower demand in South American region. We believe that majority of the expansion plan announced by the company would impact earnings beyond FY13. Over the next two years, debottlenecking activities would drive the volume growth for the company. We expect Novelis shipments to remain flat at 0.4% yoy to 3.1mn tons in FY12 due to the flood situation in South East Asia and decline in demand from US & Europe. However, in FY13, we expect volumes to increase 3.7% yoy led by strong volume growth in Asia. EBIDTA/ton to rise to US$368 in FY13E
400 350 3,100 300 250 2,900 200 150 2,700 100 50 2,500 FY08 FY09 FY10 FY11 FY12E FY13E FY09 FY10 FY11 FY12E FY13E US$/ton

Novelis has a rich product mix and has pricing power on ~70% of its product mix

Shipments to increase 4% yoy in FY13E

3,300 '000 tons

Source: Company, India Infoline Research

Revenue to grow 5% yoy in FY12E

12,000 Revenue US$ mn yoy chng % 25 20 15 10 10,000 5 0 (5) 9,000 (10) (15) 8,000 FY09 FY10 FY11 FY12E FY13E (20)

EBIDTA to increase 10% over FY11-13E

1,400 1,200 1,000 800 600 400 200 FY09 FY10 FY11 FY12E FY13E Adjusted EBIDTA US$ mn EBIDTA Margin % 12 10 8 6 4 2 0

11,000

Source: Company, India Infoline Research

We expect adjusted EBIDTA/ton to increase from US$346/ton in FY11 to US$359/ton in FY12 and US$368/ton in FY13

The improvement in product mix and the companys ability to raise premium would lead to higher margins over the next two years. Novelis has been persistently looked at reducing costs by cutting employee costs and by product rationalization. As a result, we expect adjusted EBIDTA/ton to increase from US$346/ton in FY11 to US$359/ton in FY12 and US$368/ton in FY13. We believe the company would be able to meet its revised FY12 EBIDTA guidance of US$1.11.15bn. 17

Sector Report

Hindalco Industries
Aditya Birla Minerals Ltd
Hindalco Industries owns 51% of Aditya Birla Minerals Ltd (ABML), a company having 100% holding in Birla Nifty Pty Limited and Birla Mt Gordon Pty Limited located in Western Australia and Queensland, respectively. It is an Australian-based mining company with a focus on copper production and exploration. ABML has mining and exploration activities focused at the Nifty copper operation in the Pilbara region, northwest Australia, and the Mt Gordon copper operation in northwest Queensland, Australia. The Nifty copper operation consists of an underground mine, heap leach pads and a solvent extraction and electro winning (SXEW) processing plant and a copper concentrator plant. A copper sulphide deposit is located at the lower levels of the Nifty open pit mine and an underground mine and concentrator have been developed to mine and process 2.3mtpa ore from this deposit. The Mt Gordon copper operation consists of an underground and open pit mine, a copper concentrate plant with a milling capacity to process up to 1.5mtpa of ore to produce copper in concentrate and ferric leach plant. Nifty mines recorded the highest copper production and also highest ore mine processed to date. Production of copper in FY11 was at an all time high at 59,600 tons despite lower copper grade. Mount Gordon has received the requisite approval for mining. Net profit in FY11 was AU$57mn against AU$61mn in FY10.
In H1 FY12, the Nifty Copper Sulphide operations produced 22,562 tons of copper in concentrate, 24% lower than 29,491 tons produced in H1 FY11

Aditya Birla Minerals Ltd is an Australian-based mining company with a focus on copper production and exploration

We expect copper output to increase 10% in H2 FY12 over H1 FY12 and then to increase 15% yoy in FY13

In H1 FY12, the Nifty Copper Sulphide operations produced 22,562 tons of copper in concentrate, 24% lower than 29,491 tons produced in H1 FY11. The decline in production was due to the breakdown of power turbine, poor availability of loaders and lower grade of ore. The Mt Gordon operations resumed operations from May 11 following receipt of all necessary statutory approvals. In H1 FY12, it produced 4,313 ton of copper in concentrate. The company has guided full year target production at its Mt Gordon operations in the range of 11,00014,000 tons and expects production to ramp up at its Nifty Copper mine. We expect copper output to increase 10% in H2 FY12 over H1 FY11 and then to increase 15% yoy in FY13. The impact of higher production on profitability would be negated by lower copper prices in FY13. ABML copper volumes and realization trend
90,000 80,000 70,000 7,000 60,000 50,000 40,000 FY08 FY09 FY10 FY11 FY12E FY13E 6,000 Copper volume US$ mn Copper realisations US$/ton 9,000

8,000

5,000

Source: Company, India Infoline Research

Sector Report

18

Hindalco Industries
Novelis to provide earnings stability over FY11-13E Hindalcos standalone operating profit is expected to increase on the back of a weaker rupee in FY12 and aluminium volume growth in FY13. The growth rate has been lower as the impact of the major expansion would be back ended in FY13. We expect further delays in commissioning of the Mahan smelter and the Utkal alumina refinery. The companys aluminium cost of production is expected to remain high under Mahan as the companys coal mine is awaiting environmental clearance and tapering linkage would be hard to come by. Any further delay in commissioning of the Utkal refinery would further add pressure on the companys operating margins. However, we believe that Novelis would continue to report strong numbers going ahead. With aluminium price ceiling contracts as thing of past and the consolidation of the industry increasing the companys pricing power, Novelis would be able to increase its margins over the next two years. We expect Novelis would achieve US$1.1-1.15bn EBIDTA target after achieving its EBIDTA target of US$1bn in FY11. Novelis is expected to contribute ~65% of the EBIDTA growth over the next two years. We value the company on a sum-of-the-parts (SOTP) basis. We value Hindalcos Indian business at 6.5x FY13E operating profit of Rs39.2bn & Rs59bn of operating profit from Novelis and ABML at 5x FY13E operating profit of Rs9bn and the investments at a 20% discount to the market price. We arrive at a 9-month price target of Rs185, and recommend a BUY rating on the stock. On our derived target price of Rs185, the company would be trading at FY13E EV/EBIDTA of 6.8x and a P/E of 10.4x. At the CMP of Rs129, Hindalco is trading at 0.8 FY12E P/B, which is a discount to the 5-year average of 1.3x. Hindalco is trading at a discount to its historical 5-year average EV/EBIDTA of 7.42
18 16 14 12 10 8 6 4 2 Oct-06 May-08 May-09 May-10 May-11 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 0 Apr-06 Apr-07 EV/EBIDTA (x) Average EV/EBIDTA (x)

Hindalcos standalone operating profit is expected to increase on the back of a weaker rupee in FY12 and aluminium volume growth in FY13

Novelis is expected to contribute ~65% of the EBIDTA growth over the next two years

& its 5-year average P/B of 1.3

PB(x) AveragePB(x)

3.5 3.0 2.5 2.0 1.5 1.0 0.5 Apr06 Apr07 0.0

Apr08

Apr09

Apr10

Apr11

Oct06

Oct07

Oct08

Oct09

Oct10

Source: Company, India Infoline Research

Sector Report

Oct11

19

Hindalco Industries
Financials
Income statement
Y/e 31 Mar (Rs m) Revenue Operating profit Depreciation Interest expense Other income Profit before tax Taxes Share of Profit in JVs Adj. profit Exceptional items Net profit FY10 FY11 FY12E FY13E 607,079 720,779 798,599 854,975 97,458 80,017 94,520 105,280 (27,836) (27,500) (29,534) (34,337) (11,041) (18,393) (20,365) (23,510) 3,227 4,309 4,736 5,927 61,808 38,432 49,357 53,360 (19,319) (9,638) (13,284) (14,648) (4,264) (4,230) (4,660) (4,792) 38,225 24,564 31,413 33,920 1,030 39,255 24,564 31,413 33,920

Key ratios
Y/e 31 Mar Growth matrix (%) Revenue growth Op profit growth EBIT growth Net profit growth Profitability ratios (%) OPM EBIT margin Net profit margin RoCE RoNW RoA Per share ratios EPS Dividend per share Cash EPS Book value per share Valuation Ratios P/E (x) Price/CEPS Price/Book (x) EV/EBITDA (x) Payout (%) Dividend payout Tax payout Liquidity ratios Debtor days Inventory days Creditor days Leverage ratios Interest coverage Net debt / equity Net debt / op. profit FY10 (8.0) 228.1 FY11 18.7 (17.9) (22.0) (35.7) FY12E 10.8 18.1 22.7 27.9 FY13E 7.1 11.4 10.3 8.0

Balance sheet
Y/e 31 Mar (Rs m) Equity capital ESOP Reserves Net worth Minority interest Debt Defer tax liab (net) Total liabilities Fixed assets Investments Net working capital Inventories Sundry debtors Other current assets Sundry creditors Other curr liab Cash Total assets FY10 1,914 71 213,462 215,446 17,372 239,987 39,382 512,187 348,013 112,455 29,764 112,754 65,437 FY11 1,915 75 288,243 290,233 22,169 276,920 37,596 626,918 455,361 108,549 37,445 140,956 79,996 FY12E 1,915 75 316,067 318,057 26,580 332,946 37,596 715,178 546,043 108,549 42,889 156,174 88,633 FY13E 1,915 75 346,397 348,387 31,121 383,152 37,596 800,257 626,412 108,549 48,210 167,199 94,889

16.1 12.0 6.3 14.7 20.4 5.7

11.1 7.9 3.4 10.0 9.7 3.2

11.8 8.7 3.9 10.4 10.3 3.5

12.3 9.0 4.0 10.1 10.2 3.4

20.0 1.6 34.5 112.5

12.8 1.5 27.2 151.5

16.4 1.9 31.8 166.1

17.7 1.9 35.7 181.9

6.5 3.7 1.1 4.8

10.1 4.7 0.9 6.2

7.9 4.1 0.8 5.9

7.3 3.6 0.7 5.8

7.9 31.3

11.7 25.1

11.4 26.9

10.6 27.5

31,739 33,334 38,334 43,334 (130,996) (164,692) (182,473) (195,354) (49,170) (52,149) (57,779) (61,858) 21,954 25,563 17,698 17,086 512,187 626,918 715,178 800,257

39 68 79

41 71 83

41 71 83

41 71 83

Cash flow statement

Y/e 31 Mar (Rs m) Profit before tax Depreciation Tax paid Working capital Operating cash flow Capital expenditure Free cash flow Equity raised Investments Debt finan/diposal Dividends paid Other items Net in cash FY10 61,808 27,836 (19,319) (21,575) FY11 38,432 27,500 (9,638) (7,680) FY12E 49,357 29,534 (13,284) (5,444) FY13E 53,360 34,337 (14,648) (5,322)

6.6 1.0 2.2

3.1 0.9 3.1

3.4 1.0 3.3

3.3 1.1 3.5

Du-Pont Analysis
Y/e 31 Mar (Rs m) Tax burden (x) Interest burden (x) EBIT margin (x) Asset turnover (x) Financial leverage (x) RoE (%) FY10 0.62 0.85 0.12 0.91 3.58 20.4 FY11 0.64 0.68 0.08 0.94 3.04 9.7 FY12E 0.64 0.71 0.09 0.89 2.96 10.3 FY13E 0.64 0.69 0.09 0.85 3.02 10.2

48,750 48,613 60,163 67,727 (28,194) (134,848) (120,216) (114,706) 20,555 (86,234) (60,052) (46,979) 20,660 53,090 (8,147) 3,907 (43,085) 36,937 56,027 50,206 (3,030) (2,872) (3,590) (3,590) 13,083 (1,218) (250) (250) 36 3,610 (7,865) (612)

Sector Report

20

NALCO BUY
Risk Reward Favorable
Sector: Metals & Mining Sensex: CMP (Rs): Target price (Rs): Upside (%): 52 Week h/l (Rs): Market cap (Rscr) : 6m Avg vol (000Nos): No of o/s shares (mn): FV (Rs): Bloomberg code: Reuters code: BSE code: NSE code:
Prices as on 13 Dec, 2011

16,003 51 60 17.6 120 / 48 13,144 294 2,577 5 NACL IB NALU.BO 532234 NATIONALUM

Alumina volumes to surge in FY13E NALCO commissioned a 0.52mtpa alumina refinery in Q2 FY12, raising its alumina capacity to 2.1mtpa. The company produced ~30,00040,000tons of alumina during Q2 FY12, which is expected to increase to 0.12mn tons in H2 FY12. We expect alumina production to increase from 1.6mn tons in FY11 to 1.7mn tons in FY12 and 1.9mn tons in FY13. On the other hand, we expect aluminium production volumes to remain flat over the next two years due to high coal costs and lucrative alumina market. As a result of this, external sale of alumina is expected to surge to 1mn tons in FY13 from 0.7mn tons in FY11. Operating profit to remain flat over FY11-13E Over the last two years, NALCOs OPM has been impacted by rising coal and raw material costs. We expect this to continue in FY12 and expect the companys OPM to shrink 456bps to 20.6%. However, in FY13, we expect raw material contract prices to be lower as spot prices of these raw materials have declined over the last six months. NALCOs power costs have jumped as supply of linkage coal from Coal India has reduced to sub-80% levels (90% earlier) and price hikes announced in Q4 FY11. We expect supply to decline further on account of the tight domestic coal market. On the other hand, the pressure on margins would be reduced due to higher share of alumina sales (revenue share from 17% in FY11 to 28% in FY13). We estimate operating profit in FY13 to increase 11.8% yoy to Rs15.5bn on the back of lower raw material costs and higher alumina exports. Risk reward favorable; upgrade to BUY NALCOs stock price has halved over the last six months on account of depressed Q2 FY12 results and weak commodity prices We believe the company has formed a bottom in terms of profitability in Q2 FY12 and the worst is behind us. We expect margins to improve from Q2 FY12 levels on the back of improved coal supply and higher sales of alumina in the export market. We expect OPM to improve drastically from the 9.5% reported in Q2 FY12 to 21.1% in FY13. With no major capex over the next two years, we estimate cash levels to increase from the current Rs56bn to Rs70bn by FY13. Our FY13 cash levels account for 54% of the current market cap and would lend support to the stock price. At the CMP of Rs51, the company is trading at 5.2x FY12 EV/EBIDTA and 4x FY13 EV/EBIDTA which is at ~50% discount to its historic one year forward average multiple of 10.5x. We do not see much downside from the current levels and upgrade the stock from Market Performer to BUY with a 9-month price target of Rs60. Financial summary
Y/e 31 Mar (Rs m) Revenues yoy growth (%) Operating profit OPM (%) Pre-exceptional PAT Reported PAT yoy growth (%) EPS (Rs) P/E (x) P/BV (x) EV/EBITDA (x) ROE (%) ROCE (%) FY10 50,799 (0.8) 9,961 19.6 8,025 8,142 (36.0) 3.1 16.4 1.3 9.0 8.0 10.7 FY11 59,646 17.4 15,029 25.2 10,703 10,693 31.3 4.2 12.3 1.2 5.3 9.9 13.3 FY12E 67,025 12.4 13,835 20.6 10,034 10,034 (6.2) 3.9 13.1 1.1 5.2 8.7 11.7 FY13E 73,243 9.3 15,464 21.1 11,163 11,163 11.3 4.3 11.8 1.0 4.0 9.1 12.2

Shareholding pattern September '11 Promoters Institutions Non promoter corp hold Public & others Performance rel. to sensex (%) NALCO HZL Sterlite Hindalco 1m (7.9) 10.2 (8.2) 7.5 3m (17.6) (0.4) (16.9) (5.2) 1yr (26.5) 23.9 (21.2) (23.4) (%) 87.2 9.4 2.5 0.9

Share price trend

140 120 100 80 60 40 Dec-10 Apr-11 Aug-11 Dec-11 NALCO Sensex

Source: Company, India Infoline Research

NALCO

Alumina production is expected to increase from 1.6mn tons in FY11 to 1.7mn tons in FY12 and 1.9mn tons in FY13

Alumina volumes to surge in FY13E NALCO currently has a production capacity of 0.46mtpa of aluminium and 2.1mtpa for alumina. The company managed to expand its alumina refinery capacity from 1.58mtpa to 2.1mtpa in Q2 FY12. The company commissioned the 2nd phase expansion of 0.52mtpa alumina refinery in Q2 FY12. The company managed to produce ~30,00040,000tons of alumina during the quarter. However, no alumina was sold from the new refinery as it had to build a stock of 40,000 tons. As per a technical requirement the company had to build stock up to a particular level before selling the produce in the market. The saleable product will start rolling out only in Q3 FY12 and it expects to sell 30,000-60,000 tons of alumina from the new refinery in Q3 FY12. We expect alumina production to increase from 1.6mn tons in FY11 to 1.7mn tons in FY12 and 1.9mn tons in FY13. We have kept our production target lower than the guidance to account for some short fall in coal over the next two years. Alumina production to jump 9% in FY13
2.0 1.9 1.8 1.7 1.6 1.5 0 (5) (10) FY07 FY08 FY09 FY10 FY11 FY12E FY13E Production mn tons yoy grow th % 15 10 5

Quarterly alumina production

500,000 460,000 420,000 380,000 340,000 300,000 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q2FY09 Q3FY09 Q4FY09 tons

1.4

Source: Company, India Infoline Research

Aluminium production in FY12 is estimated to decline 2% yoy in FY12 and to increase 2.6% to 0.44mn tons in FY13

On the other hand, we expect aluminium production volumes to remain flat over the next two years. Aluminium production in H1 FY12 was lower by 3.4% yoy to 214,360 tons on account of coal shortage in Q2 FY12. During Q2 FY12, supply of coal from Mahanandi Coal Fields (MCL) was disrupted due to heavy rainfall in the region. NALCO received ~70% of its coal from MCL as against the average rate of 80% for the year. As a result, the company had to buy expensive imported coal and had to draw power from the state grid. This led to a sharp jump in operating costs for the company, due to which the company had to take shutdown of the 120 pots. There was less production of metal during Q2 FY12 by ~6,000 tons because supply of coal was affected. The pots remain closed in October too as the company was building stock of coal. We expect H2 FY12 production to remain flat on a yoy basis at 220,340 tons. Aluminium production in FY12 is estimated to decline 2% yoy in FY12 and to increase 2.6% to 0.44mn tons in FY13. The subdued performance in aluminium production is largely due to lower availability of coal in the domestic market.

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22

NALCO
Quarterly aluminium production
120,000 110,000
0.45

Aluminium production to remain subdued over FY11-13E

0.50 Production mn tons yoy grow th % 20 15 10 0.40 5 0.35 0 (5) FY07 FY08 FY09 FY10 FY11 FY12E FY13E

tons

100,000 90,000 80,000 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q2FY09 Q3FY09 Q4FY09

0.30

Source: Company, India Infoline Research

Due to flat aluminium production over the next two years, external sale of alumina is expected to surge in FY13. In H1 FY12, NALCO sold 366,060 tons of alumina, 12.3% higher on a yoy basis. We expect external sales to rise to 469,778 tons in H2 FY12 on the back of incremental output from the new refinery. External sales of alumina are expected to rise further in FY13 by 20% yoy to 1mn tons in FY13 on our estimate of flat aluminium production. Quarterly alumina sales volume
300,000 250,000 200,000 150,000 100,000 50,000 0 0.9 0.8 0.7 tons

Alumina sales to jump 47% over FY11-13E

1.1 1.0 Volume mn tons yoy grow th % 25 20 15 10 5 0 (5) (10) (15) (20) FY07 FY08 FY09 FY10 FY11 FY12E FY13E

Q1 FY10

Q2 FY10

Q3 FY10

Q4 FY10

Q1 FY11

Q2 FY11

Q3 FY11

Q4 FY11

Q1 FY12

Q2 FY12

Q2FY09

Q3FY09

Q4FY09

0.6 0.5

Source: Company, India Infoline Research

Aluminium realizations to remain flat on the back of weaker rupee

150,000 140,000 130,000 120,000 110,000 100,000 90,000 80,000 FY07 FY08 FY09 FY10 FY11 FY12E FY13E
Source: Company, India Infoline Research

Alumina realizations to strengthen on the back of tight alumina market

25,000 20,000 15,000 10,000 5,000 0 FY07 FY08 FY09 FY10 FY11 FY12E FY13E Alumina realisation Rs/ton yoy grow th % 40 30 20 10 0 (10) (20) (30) (40)

Aluminium realisation Rs/ton

yoy grow th %

35 30 25 20 15 10 5 0 (5) (10) (15) (20)

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23

NALCO

Revenue from sale of alumina is expected to increase from 17% in FY11 to 28% in FY13

Raw material cost pressure to ease in FY13E NALCO meets most of its raw material requirement through yearly contracts. These contracts are generally agreed at the start of the financial year. For FY12, the rate at which the contracts were agreed at is quite higher than the current spot prices. The company indicated that contract prices for raw material like caustic soda and CP coke increased by 30% yoy in FY12. Since spot prices of these raw materials have declined over the last six months and are quite below the contract prices, we expect FY13 contract prices to be lower in FY13. Raw material costs as a % of sales are expected to decline from 14% in FY12 to 12.4% in FY13. The decline in raw material costs is also on account of increase in share of alumina sales of total sales in FY13. Revenue from sale of alumina is expected to increase from 17% in FY11 to 28% in FY13. whereas power & fuel costs would continue to trend upwards
35 30 25 20 15 10 %

Raw material costs as a % of sales to decline in FY13E

18 16 14 12 10 8 6 4 2 0 FY07 FY08 FY09 FY10 FY11 FY12E FY13E
Source: Company, India Infoline Research

FY07

FY08

FY09

FY10

FY11

FY12E FY13E

In Q2 FY12, availability of linkage coal reduced to 70% from the average guidance of 80%.

Power costs to increase to 32.1% in FY12 and 33.5% in FY13

Power costs would continue to impact margins NALCO has historically been vulnerable to rising coal costs and intermittent disruptions of coal supplies from Mahanandi Coal Fields (MCL). Over the last two years, supply of linkage coal from Coal India has been lower (84% vs 90% earlier) due to the tight domestic demandsupply situation. NALCO also faces issues related to poor-quality coal. In FY12, it would be adversely impacted as linkage coal supply has reduced further and prices have been raised ~30% in end-Feb. In Q2 FY12, availability of linkage coal reduced to 70% from the average guidance of 80%. We believe supply of linkage coal would continue to decline going forward on account of the tight coal supply situation in India. Power & fuel costs as a % of sales increased sharply an average of 30% over the last two years to 39% in Q2 FY12. We expect this cost to increase to 32.1% in FY12 and 33.5% in FY13.

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NALCO

In FY13, we expect OPM to expand on the back of lower raw material costs and higher contribution from alumina

Operating profit to remain flat over FY11-13E Over the last two years, NALCOs OPM has been impacted by rising coal and raw material costs. We expect this to continue in FY12, with the companys OPM shrinking by 456bps to 20.6% in FY12. The pressure on margins would also be on account of rising staff costs. Employee costs in H1 FY12 was 37% higher on a yoy basis to Rs5.8bn. We expect FY12 employee costs to increase 20% yoy to Rs11.9bn from Rs9.9bn in FY11. In FY13, we expect OPM to expand on the back of lower raw material costs and higher contribution from alumina. We estimate an expansion of 47bps yoy in FY13 to 21.1% leading to an 11.8% yoy increase in operating profit. Operating profit is expected to decline by 8% yoy to Rs13.8bn and then to increase by 11.8% yoy to Rs15.5bn. We have not included any contribution from the captive coal mine allotted to the company. The company has been allotted the Utkal-E Coal Block with estimated reserves of around 70mn tons. The mine shall cater to the requirement of new power units commissioned over the last two years. The project is estimated to cost Rs2.8bn and as per management guidance is likely to become operational by June 12. Operating profit to stay flat at Rs15.5bn in FY13
40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 FY07 FY08 FY09 FY10 FY11 FY12E FY13E
Source: Company, India Infoline Research

Operating profit Rs mn

OPM %

70 60 50 40 30 20 10 0

NALCO currently has ~Rs56bn of cash and cash equivalent, implying Rs21.7/share or 43% of the current market cap

Current cash and cash equivalents at 43% of market cap NALCO currently has ~Rs56bn of cash and cash equivalent, implying Rs21.7/share or 43% of the current market cap. We believe that the over the next two years cash levels is expected to rise further as most of the expansion is operational and there is no major capex announced by the company. Over the next two years, we estimate cash & cash equivalents to increase to Rs60bn in FY12 and Rs70bn in FY13. Our FY13 cash estimate of Rs70bn would account for 54% of the companys market cap and would lend support to the sharp decline in stock price. To utilize its cash reserve, NALCO has signed a joint venture agreement with Nuclear Power Corporation of India Ltd (NPCIL) for collaboration in setting up nuclear power plants in the country. NALCO will initially have a 29% stake in the joint venture company, which will later be increased to 49%. The total capex for the project is estimated at Rs114.5bn. It added that the NALCO-NPCIL joint venture will build units 3 and 4 at the Kakrapar plant in Gujarat, construction of which has already started. Current tariffs for the nuclear power assure RoE of 14% even at normative PLF 68.5%. We wait for further clarity on the JV and have not included any investments in our estimates.

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NALCO

FY13E cash & cash equivalents at 54% of current market cap

80,000 70,000 60,000 50,000 40,000 30,000 FY07 FY08 FY09 FY10 FY11 FY12E FY13E Rs mn

Source: Company, India Infoline Research

Risk reward favorable; upgrade to BUY NALCOs stock price has corrected sharply over the last six months on account of weak commodity prices and subdued Q2 FY12 results. The companys performance over the last three years has hindered by the disruptions in coal supply from MCL. We believe that the worst is behind us and the company has formed a bottom in terms of profitability in Q2 FY12. We expect margins to improve from Q2 FY12 levels on the back of improved coal supply and higher sales of alumina in the export market. We expect OPM to improve drastically from the 9.5% reported in Q2 FY12 to 20.6% in FY12 and 21.1% in FY13. We estimate operating profit to decline 7.9% yoy to Rs13.8bn in FY12 and then recover 11.8% yoy to Rs15.5bn in FY13. With no major capex over the next two years, we estimate cash levels to increase from Rs56bn at the end of H2 FY12 to Rs70bn by FY13. Our FY13 cash levels account for 54% of the current market cap and would lend support to the stock price in the near term. At the CMP of Rs51, the company is trading at 5.2x FY12 EV/EBIDTA and 4x FY13 EV/EBIDTA, which is at ~50% discount to its historic one year forward average multiple of 10.5x. We do not see much downside from the current levels and upgrade the stock from Market Performer to BUY with a 9month price target of Rs60. Trading at 50% discount to its historic 1-year forward EV/EBIDTA average of 10.5x
25 20 15 10 5 0 Apr-06 EV/EBIDTA (x) Average EV/EBIDTA (x)

& below its historic 1-year forward P/B average of 2.2x

4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 PB(x) AveragePB(x)

Apr06

Apr07

Apr08

Apr09

Apr10

Apr11

Oct06

Oct07

Oct08

Oct09

Oct10

Oct-06

May-08

May-09

May-10

May-11

Nov-07

Nov-08

Nov-09

Nov-10

Source: Company, India Infoline Research

Sector Report

Nov-11

Apr-07

Oct11

26

NALCO

Financials
Income statement
Y/e 31 Mar (Rs m) Revenue Operating profit Depreciation Interest expense Other income Profit before tax Taxes Adj. profit Exceptional items Net profit FY10 50,799 9,961 (3,194) (23) 4,688 11,432 (3,406) 8,025 117 8,142 FY11 59,646 15,029 (4,301) (1) 4,530 15,257 (4,554) 10,703 (10) 10,693 FY12E 67,025 13,835 (4,741) 0 5,209 14,303 (4,269) 10,034 0 10,034 FY13E 73,243 15,464 (4,916) 0 5,365 15,913 (4,750) 11,163 0 11,163

Key ratios
Y/e 31 Mar Growth matrix (%) Revenue growth Op profit growth EBIT growth Net profit growth Profitability ratios (%) OPM EBIT margin Net profit margin RoCE RoNW RoA Per share ratios EPS Dividend per share Cash EPS Book value per share Valuation Ratios P/E (x) Price/CEPS Price/Book (x) EV/EBITDA (x) Payout (%) Dividend payout Tax payout Liquidity ratios Debtor days Inventory days Creditor days FY10 (0.8) (41.2) (40.3) (36.2) FY11 17.4 50.9 33.2 33.4 FY12E 12.4 (7.9) (6.3) (6.3) FY13E 9.3 11.8 11.3 11.3

Balance sheet
Y/e 31 Mar (Rs m) Equity capital Reserves Net worth Debt Defer tax liab (net) Total liabilities Fixed assets Investments Net working capital Inventories Sundry debtors Other current assets Sundry creditors Other curr liab Cash Total assets FY10 FY11 FY12E FY13E 6,443 12,886 12,886 12,886 97,513 98,760 106,133 114,337 103,956 111,646 119,020 127,223 0 149 0 0 6,606 6,935 6,935 6,935 110,562 118,730 125,954 134,158 70,797 72,371 74,194 73,279 9,868 13,317 13,317 13,317 (1,626) (4,910) (8,032) (9,321) 9,449 10,585 11,405 11,983 1,818 1,124 1,263 1,380 9,306 10,791 10,016 10,936 (15,885) (20,618) (22,113) (24,165) (6,314) (6,792) (8,603) (9,454) 31,524 37,952 46,475 56,884 110,562 118,730 125,954 134,158

19.6 22.5 15.8 10.7 8.0 6.3

25.2 25.6 17.9 13.3 9.9 7.7

20.6 21.3 15.0 11.7 8.7 6.6

21.1 21.7 15.2 12.2 9.1 6.9

3.1 0.6 4.4 40.3

4.2 1.0 5.8 43.3

3.9 0.9 5.7 46.2

4.3 1.0 6.2 49.4

3.1 11.7 1.3 9.0

4.2 8.8 1.2 5.3

3.9 8.9 1.1 5.2

4.3 8.2 1.0 4.0

23.5 29.8

28.1 29.8

26.5 29.8

26.5 29.8

Cash flow statement

Y/e 31 Mar (Rs m) Profit before tax Depreciation Tax paid Working capital Optg cash flow Capital expenditure Free cash flow Investments Debt finan/diposal Dividends paid Other items Net in cash FY10 11,432 3,194 (3,406) (1,108) 10,111 (4,994) 5,116 (908) (1,885) 510 2,833 FY11 15,257 4,301 (4,554) 3,284 18,288 (5,874) 12,414 (3,449) 149 (3,003) 319 6,429 FY12E 14,303 4,741 (4,269) 3,122 17,897 (6,565) 11,332 (149) (2,660) 8,523 FY13E 15,913 4,916 (4,750) 1,289 17,368 (4,000) 13,368 (2,960) 10,408

13 68 114

7 65 126

7 62 120

7 60 120

Du-Pont Analysis
Y/e 31 Mar (Rs m) Tax burden (x) Interest burden (x) EBIT margin (x) Asset turnover (x) Financial leverage (x) RoE (%) FY10 0.70 1.00 0.23 0.40 1.27 8.0 FY11 0.70 1.00 0.26 0.43 1.29 9.9 FY12E 0.70 1.00 0.21 0.44 1.31 8.7 FY13E 0.70 1.00 0.22 0.45 1.32 9.1

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Recommendation parameters for fundamental reports: Buy Absolute return of over +10% Market Performer Absolute return between -10% to +10% Sell Absolute return below -10%

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