Brokerages Cut Hindalco’s Target Price After Q3 Results, But Retain Ratings
A porter walks past a shop that stocks products of Hindalco Industries Ltd., in an old section of New Delhi, India. (Photographer: Amit Bhargava/Bloomberg News)

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.
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