Analysts Remain Bullish On Hindalco After Q4 Results

Analysts lauded Hindalco Industries Ltd.’s efforts to cut costs in its key aluminium division as they retained their bullish investment recommendations on the billionaire Kumar Mangalam Birla’s company.

Hindalco’s standalone net profit rose 38% year-on-year to Rs 326 crore in the quarter ended March, according to an exchange filing. Its earnings before interest, tax, depreciation and amortisation from the aluminium and copper businesses rose 3% and 9% year-on-year to Rs 1,039 crore and Rs 406 crore, respectively.

The company, in a post-earnings conference call, guided to further reduce costs in its aluminium division in the quarter ending June. Its plan to scale back capital expenditure is also expected to cushion the net debt-to-Ebitda. Hindalco has curtailed all capex, barring maintenance and essential, for the next year in India and for subsidiary Novelis.

Of the 25 analysts tracking the stock, 23 have a ‘buy’ rating and the rest suggests a ‘sell’. Still, the average 12-month price target tracked by Bloomberg implies a downside of 21.4%. Shares of Hindalco on Monday rose as much as 2.46% compared with a 0.92% drop in the benchmark Nifty 50 Index.

Here’s what the analysts have to say about Hindalco’s fourth-quarter performance:

CLSA

• Maintains ‘buy’ and raises target price to Rs 178 apiece from Rs 160.
• Raises FY21-22 Ebitda estimates by 5-8%.
• India’s aluminium cost of production is likely to fall further in the next quarter.
• The company is best positioned in current cycle, least exposed to commodity fluctuations.
• Net debt-to-Ebitda to rise to 4x in FY21 but will fall to 3.1x in FY22.

Credit Suisse

• Maintains ‘outperform’ rating with a target price of Rs 170 apiece.
• Expects cost tailwinds to cushion India aluminium profitability.
• Sees tailwinds despite weak LME environment in medium term.

HSBC

• Reiterates ‘buy’ and raises target price to Rs 220 apiece from Rs 215.
• Hindalco India reports a solid fourth quarter.
• Both aluminium and copper beats consensus expectations.
• Outlook on production, costs and capex comforting.
• Results further boost Hindalco’s investment case.
• Hindalco trades one standard deviation below mean to the long-term forward EV/Ebitda.

Motilal Oswal

• Maintains ‘buy’ rating with a target price of Rs 190 apiece.
• Ebitda improves led by lower aluminum cost of production.
• LME recovery holds key to further margin improvement.
• For FY21, management has guided for 1% year-on-year decline in aluminum volumes.
• Copper volumes are expected to remain flat.
• Management guided for a further 5% quarter on quarter reduction in cost of production in first quarter of 2020-21.
• Expects deleveraging in 2021-22 supported by lower capex and cost control.

Edelweiss Securities

• Maintains ‘buy’ with a target price of Rs 185 a share.
• Lower cost lifted aluminium Ebitda per tonne at $457.
• A higher proportion of value-added products and hedging gains aided copper.
• Subsidiary Novelis’s Ebitda per tonne was the best-ever at $472.
• Expects Hindalco’s earnings resilience to sustain.
• Positives include stable beverage cans business, cost efficiencies in aluminium business.