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Motilal Oswal remains bullish on Hindalco due to strong fundamentals, FCF generation

Hindalco's business is robust and de-risked. Novelis and copper segments operate on conversion model, with LME being a pass-through.

September 18, 2017 / 02:01 PM IST
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Motilal Oswal said it remained bullish on aluminium major Hindalco Industries due to strong business fundamentals and free cash flow generation.

The managements' focus on deleveraging, high IRR projects, and attractively-valued inorganic opportunities so as to deliver stakeholder's value is another reason for its bullish stance.

The research firm has reiterated its buy rating on the stock, with a target price of Rs 310 per share.

Motilal Oswal said Hindalco's business is robust and de-risked. Novelis and copper segments operate on conversion model, with LME being a pass-through.

These two businesses account for more than 60 percent of EBITDA, and provide steady cash flows and support balance sheet. Aluminum smelting is a high margin business; volatility is correlated to metal cycle.

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The company has access to high quality bauxite, strong logistics, and conveyors for bulk transportation of minerals from mines. It has secured a diversified mix of coal supply in proximity to its captive power plants.

This has helped it achieve cost leadership in aluminum production, globally, the research house said.

Novelis has global leadership in supplying flat-rolled products to the auto industry.

"Novelis will continue to look for expansion in the auto space to cater to strong growth in demand. New investments are expected in the US and China. Pricing pressure in can business has eased. Electric vehicles are likely to accelerate light-weighting and drive demand for aluminum," the research house said.

It further said Hindalco continued to focus on accelerated deleveraging and allocation of capital in downstream, which is less capital intensive. The company has already prepaid Rs 7,800 crore debt and plans to prepay another Rs 3,000 crore during FY18.

At 13:49 hours IST, the stock price was quoting at Rs 249.35, up Rs 2.15, or 0.87 percent.
first published: Sep 18, 2017 02:01 pm

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