Prabhudas Lilladher recommended accumulate rating on Hindalco Industries with a target price of Rs 210 in its research report dated August 09, 2019.
Prabhudas Lilladher's research report on Hindalco Industries
Hindalco (HNDL) reported standalone EBITDA below our estimates by 7% due to lower than expected volumes and by-product realisations in Copper (CU) operations. Despite weakness in Aluminum (AL) prices, company is confident to maintain the current quarterly EBITDA run-rate of Rs9bn on the back of fall in coal, carbon and caustic soda prices. Volumes in Copper (Cu) operations would improve 15-20% QoQ as smelter-III resumed back after planned shutdown undertaken in last quarter. However, lower Tc/RC margins and weaker by-product realisations would keep earnings in CU operations under pressure for FY20E. We cut our EBITDA estimates by 2% each for FY20E/FY21E due to lower earnings in CU operations. Novelis delivered yet another quarter of record profitability with sustained outlook on the back of increasing penetration and firm demand in Auto and beverage can segment. Valuations look attractive with EV/EBITDA at
5.2x/4.8x FY20E/FY21E and comfortable Net debt/EBITDA of 2.5x/2.1x FY20E/FY21E.
However, impending acquisition of Aleris would keep the stock under pressure due to increase in debt (to Net debt/EBITDA-4x). Hence, we maintain Accumulate with TP of Rs210, EV/EBITDA of 5.7x FY21E.
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