Buy Hindalco; target Rs 177: R K Global

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Buy Hindalco; target Rs 177: R K Global

R K Global is bullish on Hindalco and has recommended buy rating on the stock with a target price of Rs 177, in its February 14, 2012 research report.

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R K Global is bullish on Hindalco and has recommended buy rating on the stock with a target price of Rs 177, in its February 14, 2012 research report.

"Hindalco registered revenue growth of 11.2% Y-o-Y to Rs 66469mn in Q3FY12 (our estimate Rs 69489mn). However EBITDA declined by 3.4% Y-o-Y to Rs 7149mn (our estimate 7884mn) on higher operational cost. EBITDAM and PATM too fell by 13.2% and 12.0%Y-o-Y respectively during the quarter. During the quarter, the company registered revenue growth of 11.25%Y-o-Y to Rs 66470mn in Q3FY12 less than our estimate of Rs 69489mn due to higher contraction in aluminium prices that fell by 10.8%; however partially benefitted by INR depreciation. Further, operational efficiency of the company impacted by higher coal, oil and carbon cost. Company total expenditure as a percentage of sales has gone up by 1.8% to Rs 59321mn in Q3FY12 (our estimate Rs 61606mn) compared to Rs 52344mn in Q3FY11.Thus, EBITDA declined by 3.4% Y-o-Y to Rs 7149mn in Q3FY12 (our estimate Rs 7884mn) compared to Rs 7401mn in Q3FY11."

"Company's interest cost escalated by 38.2% Y-o-Y to Rs 793mn; however was overshadow with the fall in depreciation and tax cost by 7.9% and 23.7% (as a percentage of sales) to Rs 1747 and Rs 1002mn in Q3FY12. PBDT and PBT too decline by 3.1% Y-o-Y and 4.7% Y-o-Y to Rs 7256mn and Rs 5509mn in Q3FY12. PAT also fell by 2% to Rs 4507mn in Q3FY'12 (our estimate Rs 5713mn) compared to Rs 4603mn in Q3FY11. EBIDTAM and PATM too declined by 1300bps and 1200bps to 10.7% and 6.7% in Q3FY12 compared to 12.4% and 7.7% of corresponding quarter of previous year."

"At CMP of Rs 155 the stock is trading at EV/EBITDA of 9.0x FY13E EBITDA of Rs 43303mn. We revised our valuation multiple from 6x to 7.6x on hopes that demand will improve from the European economy. We changed our USD/INR estimate to Rs 46 for FY12E keeping in mind the domestic market condition. We also cut down our copper price estimates by 2.9% to Rs 8500mn for FY12E on being skeptical on the Chinese economy as inflation is increasing in economy. However we kept aluminium price remain unchanged at Rs 2300 per ton for FY12E. At revised valuation, our target price is revised to Rs 177(previous target price Rs 140) having potential upside of ~15%. Hence we recommend to buy the stock," says R K Global research report.

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To read the full report click on the attachment