Buy Hindalco; target of Rs 302: Motilal Oswal

Motilal Oswal's research report on Hindalco

3QFY19 EBITDA of INR17.2b (-1% QoQ) came in 5% higher than our estimate of INR16.7b owing to the better-than-expected copper business performance. Finance cost was flat QoQ at INR4.8b, while other income increased 13% QoQ to INR2.1b. PAT declined 2% QoQ to INR7.1b (consol. PAT up by 45% YoY to INR46b YTD). Aluminum EBITDA/t declined 6% QoQ to USD551 (our estimate: USD532) due to lower LME prices, partly offset by lower cost of production and positive hedging impact (+INR900m). Aluminum production and sales were largely stable QoQ at 324kt and 323kt, respectively.

Outlook

We raise our FY19/20 EPS estimates by 3%/4% to factor in higher other income and hedging gains. Despite upgrade to earnings, we cut our TP to INR302 (prior: INR338) due to reducing EV/EBITDA valuation multiple from 6.5x to 6x, given the general de-rating of metal stocks and accounting for the INR6.5b outgo on the rights issue of Idea.

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