Analysts Stay Bullish On Hindalco Citing Deleveraging, Operating Performance; Shares Swing

Analysts lauded Hindalco Industries Ltd.’s deleveraging efforts, improvement in cash flow generation and steady operating performance, as they maintained their bullish investment recommendation for the aluminium maker after its fourth-quarter results.

The billionaire Kumar Mangalam Birla-controlled company’s net debt-to-Ebitda stood at 2.6 times for the three months ended March compared with 3.09 times as of December. Its net debt fell to Rs 47,419 crore as of March from Rs 53,802 crore as of December.

The company’s revenue and operating profit rose during the reported quarter, beating estimates of a consensus of analysts tracked by Bloomberg.

JPMorgan welcomed Hindalco’s continued deleveraging and expects the company to commit to new capex once net debt-to-Ebitda goes below 2.5 times its target, according to its report.

Shares of Hindalco fluctuated between gains and losses in early trade. The stock opened 1.2% higher but soon dropped as much as 2.6%. As of 12:37 p.m., the scrip is trading at Rs 391, up 0.3%.

All the 26 analysts covering Hindalco recommend a ‘buy’ on the stock, according to Bloomberg data. The consensus 12-month target price implies an upside of around 23%.

Here’s what brokerages have to say about Hindalco’s fourth-quarter results:

Jefferies

• Retains ‘buy’ rating with a target price of Rs 480 apiece.
• Hindalco’s Q4 Ebitda rose 45% YoY (+9% QoQ) and was 9% above the brokerage’s estimate.
• Novelis benefits from strong demand across autos and cans.
• Novelis delivered its highest Ebitda/tonne.
• India aluminium margin rose sequentially led by higher London Metal Exchange prices, but copper margins fell QoQ.
• Expects steady performance and continued deleveraging.
• Higher working capital amid elevated metal prices should impact operating cash flow.
• Still sees net debt per share falling by Rs 18/Rs 29 in FY22/FY23.
• FY22-23 aluminium price assumption of $2,250 is 4% below spot.
• Stock is up 62% calendar year-to-date but its 1.0x FY23E price-to-book is reasonable.

JPMorgan

• Maintains ‘overweight’ rating; target price at Rs 400 apiece.
• Higher LME and an improvement in copper drove an Ebitda beat.
• Hindalco’s deleveraging continues to surprise positively.
• Remains focussed on downstream expansions; smelting expansions not on the radar at this point.
• Hindalco expects to invest surplus cash once the net debt/Ebitda goes below the 2.5x target.
• Committed to its current strategy for the next five years which is focussed on downstream expansion.

Investec Securities

• Maintains ‘buy’ and hikes target price to Rs 550 from Rs 515 apiece.
• Operational beat; open hedges and ESG focus are positives.
• Healthy cash flow generation aided net debt reduction.
• The proposed payout stood at 6% consolidated free cash flow for FY21.
• Management noted it ‘won’t over-hedge’, as it’s bullish on ally pricing, a positive for India cash flow.
• The company despite strong cash flow didn’t have any smelter related capex, given its strong ESG commitments.

Edelweiss Securities

• Maintains ‘buy’; raises price target to Rs 475 from Rs 420 apiece.
• Consolidated Ebitda driven by aluminium and copper’s shipments surpassing expectation.
• Expects the strong cash generation to persist at Novelis as well as standalone operations.
• Prioritisation of high margin accretive organic expansion is a key positive.