Hindalco Industries Limited · NSE:HINDALCO
Hindalco Industries — CLSA Investor Forum 2003
36 slides from Hindalco Industries's conference presentation, September 2003
Slide 1: Hindalco Industries Limited: An emerging regional metals major
Hindalco Industries Limited An emerging regional metals major CLSA Investor Forum 2003, Hong Kong September 2003
Slide 2: Investment highlights
Investment highlights • Domestic market leader • Globally competitive cost structure • Significant strategic strengths backing benchmark efficiencies • Entering higher growth trajectory with sustainable growth momentum • Valuations yet to reflect the changing growth profile 2
Slide 3: An Introduction
An Introduction HINDALCO - RENUKOOT Revenue Mix - FY03 R S E R Others 2% Aluminium 57% R R S S FR Copper WF 41% Bauxite Mines J F Power Station Coal Mines RS R Alumina Refinery Nifty Mines S Aluminum Smelter E Extrusion Plant S M R Rolling Mill F Foils Plant E Wheels Plant W Consolidated Revenues -
Slide 4: Aluminium Business
Aluminium Business - On a solid foundation
Slide 5: Domestic market leader
Domestic market leader Market Share - Primary Metal Market Share - Value Added Products 45 80% (%) 45 43 Hindalco Indal 42 70% 64% 6 67% 62% 6 60% 40 62% 62% 61% 6 39 50% 37 37 35 36 40% 34 32 30% 30 31% 25% 26% 27% 23% 20% 16% 25 26 10% 0% 20 Rolled Products Extrusions Foils FY97 FY98 FY99 FY00 FY0
Slide 6: Amongst lowest cost producers in the World
Amongst lowest cost producers in the World (US$/T) Cash Operating Costs 2002 1200 1,168 1100 1,128 1,000 1000 990 969 965 900 859 908 898 860 845 800 700 600 Al n a g P l co lco lco o* ey o ca co Av nt BH us lc in Ba Na ha Ti Al Al da R ch l ba C o in Pe Ri lo H G ___________________ Source: CRU Rep
Slide 7: Fully integrated operations: A significant strategic advantage
Fully integrated operations: A significant strategic advantage Rolled Captive Power (988 MW) 170,000 TPA Wire Rods 50,000 TPA Alumina Aluminium Bauxite 1.06 Mn 410,000 Extrusion Mines TPA TPA 21,700 TPA Foils 14,000 TPA Caustic Soda Al. Fluoride From JV From JV Wheels 300,000 Pcs Indal synergies pro
Slide 8: Access to low cost captive power
Access to low cost captive power Pot-room Power Cost (US$/Ton of Metal) US$/Ton 600 500 484 481 417 400 330 324 289 300 272 261 200 182 100 0 Balco Chalco Nalco Global Hindalco * Alcoa Kaiser Pechiney Alcan Avg. ___________________ Source: CRU Report on Aluminium Smelting Costs, May 2003 * Data rela
Slide 9: Sustained efficiency improvement over the years
Sustained efficiency improvement over the years Refinery Energy Efficiency Smelter Energy Efficiency T/ T GJ / T (KwH/To n) (%) 4.5 18.5 19 15,000 100 18 4.0 90 4.1 17 3.9 3.9 3.9 3.9 16 14,000 3.7 3.5 14.6 80 3.6 15 3.5 3.4 14 3.0 70 13 13,000 2.5 12 60 11 2.0 10 12,000 50 FY95 FY97 FY99 FY01 FY03
Slide 10: Net Result: Superior margins and sustained value delivery
Net Result: Superior margins and sustained value delivery Figures for CY2002 / FY03 Hindalco* Nalco Chalco Alcoa Alcan Operating Margin (%) 33.8% 45.7% 24.3% 13.1% 15.3% EBIT Margin (%) 27.8% 33.4% 12.5% 15.3% 8.4% ROCE (%) 17.2% 16.8% 10.1% 7.6% 7.3% Net Profit Growth (5-Year CAGR) 5% 3.3% 0% -0.9%
Slide 11: Immediate growth drivers #1: Brownfield expansion
Immediate growth drivers #1: Brownfield expansion having twin impact • Renukoot expansion commissioned ahead of schedule – Smelter operating at 315,000 MTPA; to increase to 345,000 MTPA by October 2003 – 10th Power Unit at Renusagar is commissioned – Co-generation plant to be commissioned by Mar-04;
Slide 12: Immediate growth drivers #2: Margin recovery gaining momentum
Immediate growth drivers #2:Margin recovery gaining momentum Operating Margins vs. LME • Operating margins bottomed out in Q3FY03 (%) ($/ Ton) – Higher input costs for power generation 40 1450 39 1400 – Power disruptions affecting Smelter operations 38 1350 • Smart recovery in margins to 38% in Q1 3
Slide 13: Immediate growth drivers #3: Indal Synergies
Immediate growth drivers #3:Indal Synergies • Strategy under implementation Alumina Exports – Integration of logistics (Tons) (US$/Ton) 180,000 300 288 – Product and market rationalisation for better 270 170,000 customer reach 247 – Market synergies 160,000 250 – Production process strengthening for
Slide 14: Copper Business
Copper Business - A high growth operation
Slide 15: Birla Copper: Amongst fastest growing copper producers in the region
Birla Copper: Amongst fastest growing copper producers in the region Business ROCE • Value accretive acquisition last year • World class, cost efficient operations 20 (%) – Domestic market leader 19 – Impressive export performance 17 15 16 – Globally benchmarked efficiencies – Strategic locational a
Slide 16: Domestic market leader with enviable export success
Domestic market leader with enviable export success Domestic Market Share (%) Copper Exports (MT) (Tonnes) 80,000 Imports 85,000 12% HCL 14% 60,000 Sterlite 34% Hindalco 40,000 42,900 40% 20,000 10,300 Domestic Market Size: 250,000 Tonnes 0 FY01 FY02 FY03 ____________________ ____________________ So
Slide 17: In the 1st quartile of global costs already
In the 1st quartile of global costs already Net Cathode Production Cost (Cash Cost + Depreciation) 35 1st Quartile 3rd Quartile 4th Quartile 2nd Quartile 30 25 Post Smelter US cents /Pound Expansion (to 2.5 lac TPA) Hindalco 20 Dahej Today 15 10 5 0 0 1000 2000 3000 4000 5000 6000 7000 Cumulative Pr
Slide 18: Helped by benchmarked efficiencies
Helped by benchmarked efficiencies Metal Recovery Energy Consumption (%) (MJ/T) 99.0 4,500 98.5 4,000 98.0 3,500 97.5 3,000 97.0 2,500 96.5 2,000 96.0 1,500 rja h ga an n va y r a de yo r Hu a C ik Pa i k pe sa h Ha tsc rle an de n im r C a Sa y yo O r lt ga alta s ki rla es se Ha ppe sa el To rla u
Slide 19: Low cost brownfield expansions: total costs drop 50%
… And low cost brownfield expansions Total costs drop 50%… … On falling infrastructure costs Total Costs = Variable + Capital Infrastructure Costs Per Ton of Cathode 110 (Indexed) (Indexed) 100 120 2.8 100 2.5 2.5 100 90 100 84 88 Total Cost (c/lb) - INDEXED 80 2.3 80 70 63 66 (TPA) 60 1.8 50 60 54
Slide 20: Value from by-products add further strength
Value from by-products add further strength Benefits of By-product Value Addition US$/T of Copper Production 3.0 35 31 31 32 28 2.8 30 2.5 Copper Production (TPA) (Benefits in US$/Ton of Cu) 2.3 25 2.0 1.8 20 17 1.5 13 1.5 15 1.0 1.1 1.0 10 0.5 5 - 0 FY00 FY01 FY02 FY03 FY04(E) FY05(E) _____________
Slide 21: Superior growth potential in Asia
Superior growth potential in Asia Demand Supply in Asia Country-wise D-S Gap 2004(E) 2003 400 In ’000 Tons 2000 2001 2002 (E) Surplus Asia 2748 2635 2917 3034 0 China 1800 2190 2488 2832 Sub-Total 4548 4825 5405 5866 -400 Japan 1349 1145 1146 1157 Total Demand 5897 5970 6551 7023 -800 Growth (%) - 1
Slide 22: Strategically located to reap benefits of high growth potential in Asia
Strategically located to reap benefits of high growth potential in Asia Significant freight advantage in reaching high growth markets of South East Asia and Middle East 22
Slide 23: Brownfield commissioning to drive immediate growth
Brownfield commissioning to drive immediate growth • Copper smelter capacity being raised to 250,000 TPA by 2004 • Volumes to grow 25% per annum over next 2 years • To help move further into first quartile of global costs – Already amongst lowest variable costs globally – Low cost Brownfield expansi
Slide 24: Nifty Mines will add further strength in future
Nifty Mines will add further strength in future • Nifty mines acquisition value accretive Nifty Mines – 25,000 TPA cathode through oxide operations – Concentrate supplies over a 14+ years – Annual supplies of 60,000 - 70,000 tonnes of copper equivalent in concentrate form – Exploration rights for th
Slide 25: Well positioned to capitalise on the possible upturn in the Global non-ferrous sector
Well positioned to capitalise on the possible upturn in the Global non-ferrous sector
Slide 26: Aluminium: Global outlook positive
Aluminium: Global outlook positive • Long-term fundamentals remain strong Demand Growth (%) • Economic recovery to lead demand revival Region 7M CY03 CY 2002 CY 2001 – Global economic recovery proving elusive – Signs of revival in the US, but timing uncertain North America 5.8 8.2 (11.8) – Europe is
Slide 27: Aluminium: Domestic outlook strengthening
Aluminium: Domestic outlook strengthening • Improving consumption forecast on the back of strong GDP growth and a good monsoon • Encouraging outlook for end-use sectors – Electrical: Passage of the Electricity Bill – Transport: Strong volume performance, to get further boost from likely strong farm
Slide 28: Aluminium: Price outlook
Aluminium: Price outlook LME Aluminium Prices • Global prices to track economic revival (January 2002 – September 2003) – Recent spurt driven by technicals and fund play 1,520 – Metal Prices to be in US$1400-1450/MT range in the near term 1,470 – Alumina prices to stabilise at lower levels • Domesti
Slide 29: Copper: Industry outlook stable
Copper: Industry outlook stable • Copper fundamentals improving – Global demand likely to grow 3% in 2003 – Inventories to fall further on supply constraints – Smelter closures and deferred commissioning of new Western capacities augurs well • Asia remains an attractive market – Demand growth to exc
Slide 30: Copper: Price outlook
Copper: Price outlook LME Copper Prices • Global prices improving (January 2002 – September 2003) 1,900 – Restrained supplies and demand hopes – Quarterly averages up $54/MT to $1641 in Q1 – Risen further since then 1,800 Prices averaged at $1780 in August Average of $1800 for September so far 1
Slide 31: TC/RC at historical low; Offers significant upside
TC/RC at historical low; Offers significant upside TCRC vs. LME Copper • Concentrate markets remain tight TCRC c/lb LME c/lb • Spot TCRC down 30% to 3.85 c/lb 35.0 160.0 • Mid year negotiations end lower 30.0 140.0 • Better long term and spot rates likely in 04/05 25.0 120.0 – Sustained rise in copp
Slide 32: Recap: Investment highlights
Recap: Investment highlights • Domestic market leadership with strong export presence • Globally competitive cost structure with significant strategic advantages • Several immediate term growth drivers – Brownfield expansion in Aluminium – Margin recovery in Aluminium – Indal synergy realisation, fu
Slide 33: Growth momentum sustainable even in future
Growth momentum sustainable even in future • Medium term growth drivers – Planned further expansion in copper – Mine acquisitions • Wider growth canvas and financial strength to be leveraged for long term growth – Aluminium Greenfield Alumina / Smelter Low Cost Brownfield Expansion Opportuniti
Slide 34: Valuations remain cheap…
Valuations remain cheap… EV/EBIDTA (x) PER (x) CY03/FY04 (E)* CY03/FY04 (E)* 12x 45x 11.4x 40x 10x 40.1x 9.7x 35x 8x 30x 30.8x 7.4x 7.4x 25x 6.8x 6x 6.5x 24.2x 23.5x 5.9x 20x 4.9x 18.4x 4x 15x 10x 12.9x 2x 9.7x 5x 0x 0x oa an n oa an o o o n o co co o o y to lc to c c nt ne nt c lc lc lc lc l al al
Slide 35: …Yet to reflect the changing growth profile
…Yet to reflect the changing growth profile Mkt Cap. EPS Gr.(%) ROCE ROE PEG EV/EBIDTA PER PCF P/BV (US$ Bn) 5 Yr CAGR (%) (%) CY2003/ FY2004 (x) Alcoa 23.9 (-) 5.1 4.2 4.1 2.4 9.7 30.8 10.0 2.3 Alcan 12.6 (-) 12.2 3.8 4.3 1.4 6.8 23.5 9.7 1.4 Pechiney 4.4 n.a 5.8 - - 6.5 26.2 7.5 1.3 Chalco 3.0 8.3
Slide 36: Thank You
Thank You