A key growth driver for HindalcoBSE 3.22 % is the commissioning of a new project this fiscal after a long delay. Additionally, Novelis its international subsidiary with its high value added products and increased focus on recycling will drive earnings in the event of falling aluminium demand.

The Mahan project is scheduled to be commissioned this fiscal and will achieve capacity utilization levels of 45% to 50% by FY 2014. The plant will be operated with better technology which will reduce power consumption from 14,000 units per tonne now to around 9,000 units per tonne.

The plants in India produce both value added aluminium products and value added alumina products. The margins in value added products are USD 400 to USD 500 per tonne more than that for ingots. A high contribution to EBIDTA, nearly 50%, of value added products will help it post higher EBIDTA margins compared to its peers. Operationally, Hindalco is a more efficient producer compared with Nalco and Vedanta Aluminium as its cost of production is USD 300 to USD 400 per tonne lower than its peers.

Its international subsidiary, Novelis is better positioned. The downstream facilities at Novelis are focused on beverage cans and auto parts which have a good demand growth. Additionally, the company is into recycling and uses scrap aluminium as raw material for producing value added products which is much cheaper than primary aluminium and provides a cost advantage of USD 130 per tonne to 150 per tonne. The company intends to increase the proportion of scrap in raw materials from 38% to 50% over the next three to four years. This should improve margins substantially going forward. All these come as a breather for the company in the event of a deteriorating macroeconomic scenario for aluminium ingot producers globally.

Aluminium prices have risen 12.5% over the past one month and currently rule at USD 2,100 per tonne. This is primarily due to the liquidity injection both in the US and Europe. Analysts expect prices to stabilize between USD 2,050 and USD 2,250 per tonne compared to USD 1,800 levels which have been factored in the stock prices.

Source - Economic Times

(www.steelguru.com)