Prabhudas Lilladher recommended accumulate rating on Hindalco Industries with a target price of Rs 215 in its research report dated November 11, 2019.
Prabhudas Lilladher's research report on Hindalco Industries
Hindalco (HNDL) reported standalone EBITDA below our estimates by 5% due to lower than expected realisations in AL operations, partly offset by lower costs in Copper (CU) business. Management tapered down its earlier guidance of 3-5% sequential fall in costs in H2 to 1-2% due to severe shortage of domestic coal (due to heavy flooding and local issues at Coal India’s mines). Volumes in Copper (Cu) operations would improve by 10% sequentially in H2 as H1 was impacted by maintenance shutdown at smelter-III and heavy floods. However, lower Tc/RC margins and weaker by-product realisations would keep earnings under pressure. Novelis delivered strong quarter with record margins (with EBITDA/t at US$448) and healthy volume growth of 3%.
However, headwinds on margins are clearly visible due to accentuating competition and contracting scrap spreads. Incrementally, impending acquisition of Aleris would deteriorate earnings and B/S quality due to its cyclical portfolio, peaked-out margins and high debt. Hence, we maintain Accumulate with TP of Rs215, EV/EBITDA of 5.7x FY21E.
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