Buy Insecticides India; target of Rs 560: ICICI Securities

ICICI Securities research report on Insecticides India

Hindalco has reported better-than-expected Q1FY21 earnings. Aluminium EBITDA surprised on the back of better cost control. Cost of production (CoP) of aluminium business declined ~6% QoQ. Thus, despite realised LME (with hedges) declining from US$1852/te to US$1589/te QoQ, integrated spreads fell from US$457/te to US$388/te. This is despite significant increase in exports and a meaningful drop in value-added production mix. The nature of the beat would have been more substantial, but copper operations disappointed. Copper EBITDA declined ~85% YoY – a combination of lower volumes (down 29% YoY), lower byproduct prices as well as lower TC.

Outlook

Return ratios are above cost of capital. Maintain BUY with a target price of Rs560 (9x FY22E, Earlier TP-Rs700).