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Buy Hindalco; target of Rs 315: Centrum

November 16
20:42 2017

Centrum’s research report on Hindalco

We maintain buy on Hindalco (HNDL) and revise our TP to Rs315 (vs Rs250 Earlier). HNDL’s domestic aluminium business remains a solid operational performer despite adverse coal and carbon cost headwinds (EBITDA/t at US$ 452). Utkal’s EBITDA was the strong at Rs2bn while Novelis’ performance improved further (EBITDA/t at US$ 377). We like HNDL on account of i) strong earnings visibility from low cost aluminium asset base with low cost coal & bauxite supply in place, ii) increase in the EBITDA contribution from Novelis with strong guidance, iii) strong capex discipline resulting in high FCF generation, and iv) accelerated reduction in net debt/EBITDA which places company favourably to pursue next leg of organic opportunities.

Outlook

We increase our multiple for Novelis to 7x (from 6.5x earlier) on account of superior operational performance and strong outlook while we maintain our EV/EBITDA multiple at 6.5x for domestic operations and arrive at a revised TP of Rs315. 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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