Buy Hindalco; target of Rs 340: Centrum

Centrum's research report on Hindalco

We maintain buy on Hindalco (HNDL) with a revised TP of Rs340. HNDL’s domestic aluminium business continued to deliver a solid operational performance (Blended EBITDA/t at US$762 on Utkal inclusive basis) led by industry leading cost positioning and optimum utilisations. Novelis’ performance remained solid (EBITDA/t at US$417) and Aleris (acquisition underway) also performed strongly with EBITDA/t of US$361. We like HNDL on account of i) strong earnings visibility from low cost domestic aluminium asset base with domestic coal supply in place, ii) increasing proportion of non-commodity linked EBITDA share in consolidated entity with acquisition of Aleris, iii) high FCF generation, and iv) reducing net debt/EBITDA through faster repayments and carefully calibrated capex.

Outlook

We maintain our EV/EBITDA multiple at 6.5x for domestic operations, 7x for Novelis and 7x for Aleris on FY20E earnings to arrive at our revised TP of Rs340. Maintain Buy and retain HNDL as our top large cap pick in Metals. Key downside risks are lower LME prices and lower volumes.

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