Net debt has lowered by Rs 64bn QoQ. ND/TTM conso EBITDA at 2.6x. Of US$1090mn of domestic capex scheduled for next 5 years, Hindalco plans to invest Rs27bn in FY22 (against Rs 16bn YoY). Net debt elevated by ~ Rs 80bn YoY. Higher commodity costs will lead to greater working capital requirement and may perhaps lead to greater ND/EBITDA numbers for Q1FY22E.
Aluminium sales shocked at 329kte (anticipated 315 kte). Higher worth added sales lead to greater realised premium greater charges although didn’t let for the integrated spreads to enhance – margin enhance at US$102/te QoQ was in line with LME (adj. for hedges) and MJP development QoQ. Higher domestic sales (50% of the mix) and greater worth added sales (at 28% of the mix) drove greater premium realisation. Significantly higher linkage mix of 93% helped energy charges – normalisation (back to 75%) is anticipated in Q1FY22.
Copper EBITDA shocked regardless of a muted TcRc. Low TcRc is manifesting in sharp decline in premiums realized. Copper EBITDA fell by only US$30/te QoQ, partly shielded by an enhance in copper sales – up almost 47% QoQ to 107kte. Q1FY22 functionality will be impacted by low demand and reduced rod sales – greater copper costs becoming partly accountable.
Reinforces that upstream capex is last in priority upgrade to Invest in. The price of energy in India not becoming competitive compared to hydro energy driven/Chinese smelters, the ESG headwinds behind setting up a coal based energy plant and the volatility of LME regardless of Chinese Aluminium cuts are some of the factors for the relegated priority of smelter expansion. Only with sustained Aluminium costs at greater levels more than couple of years, and certainty of competitive domestic energy costs will let management to seriously contemplate smelter expansion. This shows commitment to
5 year strategic vision i.e. downstream organic expansion, deleveraging and shareholder return – in that order.
We upgrade to Invest in, as the commitment, will assure a steady enhance in RoE and P/B.