Buy Hindalco Industries; target of Rs 236: Edelweiss

Edelweiss' research report on Hindalco Industries

Novelis’ Q4FY17 adjusted EBITDA grew 5% YoY to USD292mn. Price-cost spread at USD556/t (8-year high; up 20% YoY), EBITDA/t at USD370 (up 5% YoY) and sustained EBITDA margin at 11% continued to remain in positive terrain. This was on account of ramp up of auto capacity (auto shipments up 26% YoY) despite stagnant volume growth YoY.

Outlook

We are upbeat on sustained level of high spreads and EBITDA margin above 10% and perceive further upside with auto lines ramping up. Free cash flow sustenance at high level and improvement in leverage metrics are additional sweeteners. The stock is trading at a discount to global peers at 5.7x on FY19E EBITDA. We maintain ‘BUY/SO’.