Brokerages Cut Hindalco’s Target Price After Q3 Results, But Retain Ratings

Most analysts retained their ratings on Hindalco Industries Ltd. but slashed the target prices after the aluminium maker’s third-quarter profit fell despite lower raw material costs.

Net profit of the company fell 21.9 percent year-on-year to Rs 193 crore in the October-December period—in line with the Rs 193-crore consensus estimate of analysts tracked by Bloomberg. The numbers, however, don’t include earnings from subsidiaries Utkal Alumina International Ltd. and Novelis Inc.

The downside on a consolidated level was limited due to strong Novelis business despite a seasonally weak quarter, brokerages said.

Here’s what brokerages made of Hindalco’s third-quarter earnings:

BofA Securities

• Maintain ‘Buy’; target price cut to Rs 255 versus Rs 260 earlier.
• Upstream aluminium surprises despite price headwinds.
• Aluminium drives Ebitda beat with 5 percent quarter-on-quarter cost decline.
• Cost decline led by improved proportion of linkage coal, lower carbon costs.
• Lower treatment and refining charges to impact copper business.
• Cut FY21-22 earnings per share by 8-9 percent.

JP Morgan

• Maintain ‘Overweight’; target price at Rs 270.
• In line quarter, attractive balance sheet and downstream business.
• Aleris completion key catalyst.
• Novelis reports strong results even during a seasonally weak quarter.
• Valuations at 5.2x enterprise value/Ebitda substantially below mid-cycle levels.
• Valuation doesn’t reflect the balance sheet strength.

Citi

• Maintain ‘Buy’ rating; target price cut by 4 percent to Rs 230 per share, potential upside of 18.1 percent..
• Consolidated Ebitda fell 13 percent year-on-year on weakness in India..
• EC’s approval for Aleris’ duffel plant the only pending item to transaction.
• Limited downside given 70 percent of Ebitda comes from Novelis.
  

Prabhudas Lilladher

• Maintain ‘Accumulate’; cut target price to Rs 225 from Rs 230.
• Aluminium operation’s profitability to continue to improve on lower cost of production.
• Copper operations’ earnings would remain under pressure in FY21 due to over 20 percent fall in treatment and refining margin.
• Lower hedging gains to further weaken earnings in FY21.

Motilal Oswal

• Reiterate ‘Buy’ rating; TP of Rs 240, potential upside of 24 percent.
• Its low-cost integrated production well placed to benefit from recovery in the London Metal Index.
• Novelis’ performance remains robust, with strong spreads.