Buy Hindalco; target of Rs 239: Motilal Oswal
Motilal Oswal’s research report on Hindalco
1QFY20 (Standalone + Utkal) EBITDA at INR11.4b (v/s est. of INR10.9b) was down 16% QoQ on lower LME prices and plant shutdown in the copper business. Finance cost rose 8% QoQ (6% YoY) to INR4.9b. Other income decreased 65% QoQ (+43% YoY) on a high base (which includes MTM gains). Adj. PAT was down 63% QoQ (-74% YoY) to INR1.9b (v/s est. INR1.8b). Aluminum EBITDA/t decreased 12% QoQ to USD400 (est. USD365) on lower realization (LME was lower ~USD70), partly offset by lower costs. Aluminum production and sales remained largely stable QoQ at 326kt (+2%) and 320kt (-2%), respectively. Aluminum EBITDA was down 15% QoQ to INR8.9b. Aluminum CoP was lower USD49 QoQ on the back of lower coal and carbon costs. CoP is expected to reduce further as lower caustic and oil prices seep in. Copper production/sales were down 15%/18% QoQ to 76kt/82kt on the back of planned maintenance shutdown. This, along with lower LME and by-product volumes, led to 20% QoQ decline in Copper EBITDA to INR2.5b.
Novelis should drive growth through investment in high margin auto-rolled products. Aleris acquisition is strategic and value accretive, in our view, and should be FCF positive at margin. The stock trades attractively at 5.4x EV/EBITDA and 8.1x PE on FY21E. Our TP is INR239/share. Maintain Buy.
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