Moneycontrol BureauMorgan Stanley is overweight on Hindalco Industries with a target price of Rs 147. The brokerage house believes improved cash flows from higher aluminium price and volume growth should drive deleveraging for the company.
“This (higher volumes), coupled with improvement in the global aluminum price, should yield an 18 percent EBITDA CAGR for F16-18,” says a note by Morgan Stanely.
The cash flows should reduce the net debt to USD 7.6 billion in FY18 from USD 8.8 billion in FY16, adds the note.
Whatever earnings downside there could be from a weaker aluminium price will be offset by the company’s stable downstream and copper refining business, says the note.
“With improving ROE (from 2 percent in F16e to 7 percent in F18e), and net debt/EBITDA improving from 6.5x in F16 to 4.2x in F18, we believe the EV/EBITDA multiple is sustainable.”
As key risks the brokerage house flags weaker-than-expected aluminum price, higher energy cost in domestic operations, and continued volatility in local market.
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