Broking house, Karvy Stock Broking has recommended an underperformer rating on Hindalco Industries .
Karvy Stock Broking report on Hindalco Industries:
"We are initiating our coverage on Hindalco with an Underperformer rating, as we expect the LME Aluminium prices at best to hover around USD 2,800 per ton, which we believe is the peak and there is little head room. Though the global demand would increase by an average of 5% p.a. and the supply is not likely to see any sudden spike, our fear stems from the fact that - China can play spoil sport. Consequently, we have factored a 15% reduction in the aluminum price in a staggered manner over the next 2 years. As a result, the growth in aluminium revenues for Hindalco would be driven only by muted volume growth of around 9%. Though copper (which accounts for 50% of revenues) is making a turnaround, is not likely to significantly boost the operating profit, as its current contribution is less than 10% of operating profit, which at best would go to 20%. Since both the businesses are unlikely to fire and both the businesses are likely to be capital guzzlers, we believe the valuations at the current levels are unsustainable."
