Feb 14, 2013, 02.31 PM | Source: Moneycontrol.com
Motilal Oswal is bullish on Hindalco Industries and has recommended buy rating on the stock with a target price of Rs 175 in its February 13, 2013 research report.
Motilal Oswal (more)
"Hindalco's standalone (S/A) EBITDA increased 13% QoQ to INR5.8b, in line with est of INR6b. Aluminum segment EBITDA fell short of est due to pressure on product premium, however was offset by better operating performance of copper segment, helped by better TcRc margins despite lower acid prices.
Adj PAT increased 21% QoQ to INR4.3b due to higher EBITDA and other income partially offset by higher interest cost. Interest expense increased sharply to INR1.7b due to the recently-raised INR60b NCD.
Adjusted EBITDA was at USD185m, below est of USD252m, due to higher-than-expected loss of volumes on implementation of ERP system in North America and pressure on margins. ERP system implementation knocked off USD39m from the adjusted EBITDA. Including this, adjusted EBITDA would have been USD224m (USD345/t) v/s est of USD252m (USD350/t).
Barring auto segment, the margin pressure is visible across all segments due to slowdown in European and Chinese demand. Novelis is trying to mitigate the pressure on margins by effective cost management, increased recycling (+5pp YoY to 44%), and growth in high margin businesses of auto segment in North America and CAN business in Brazil.
We expect capex to peak for Hindalco in FY13, with a total estimated consolidated capex of USD2.5b across all its projects. Mahan and Utkal alumina projects in India and Novelis' projects will start generating cash flows in FY14. Hence, we expect deleveraging of balance sheet to start in FY14.
We have cut FY13E/FY14E/FY15E EPS by 12%/4%/13% to factor lower margins in Novelis and lower volumes in standalone operations. SOTP is cut by 6% to INR175. Stock is trading at FY15E EV/EBITDA of 5.7x. Maintain Buy with a target price of Rs 175," says Motilal Oswal research eport.
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