Analysts Bullish On Hindalco Despite Lacklustre Q2 Results, Share Price Slump

Shares of Hindalco Industries Ltd. fell the most in nearly a month after the aluminium maker lagged estimates in the quarter ended September.

Net profit fell 74 percent year-on-year in the quarter ended September to Rs 78 crore. Its operating profit, too, fell 27.4 percent over last year. That was mainly because of a sharp drop in aluminium prices at the London Metal Exchange amid subdued domestic demand. Its copper division’s performance, too, was disappointing.

Still, analysts remained bullish Hindalco as a strong performance by subsidiary Novelis Inc. offset the pressures faced by the parent. They also expect Aleris, the acquisition of which is expected to be completed by January 2020, to further enhance Hindalco’s earnings before interest, tax, depreciation and amortization.

Shares of Hindalco, however, fell as much as 2.3 percent to Rs 195.50 apiece on Wednesday. That compares with a nearly-flat Nifty 50 Index.

Here’s what brokerages have to say about Hindalco Q2 Results 2019-20

Bank of America Merill Lynch

• Maintains ‘buy’ rating but cuts target price to Rs 281 a share from Rs 290.
• Weak pricing and lower realisation lead to a subdued quarter.
• Hindalco’s upstream business trades at 56 percent discount to peers.

Citi

• Maintains ‘buy’ rating and hikes target price to Rs 240 from Rs 235 a share.
• Hindalco is well position driven by 70 percent Ebitda insulated from LME volatility.
• Strong profitability of Novelis also aids earnings.

Edelweiss

• Maintains ‘buy’ rating with a target price of Rs 235 apiece.
• Tough times for standalone operations persist.
• Novelis lends stability to earnings; watch out for Aleris.
• Aleris to further enhance Ebitda neutrality to underlying commodity prices.

Kotak Institutional Equites

• Maintains ‘buy’ rating with a revised fair value of Rs 240 from Rs 235 earlier.
• Expects a re-rating with increasing non-commodity earnings.
• Increases Ebitda estimate by 1 percent for FY20-22 with upgrades at Novelis largely offsetting downgrades.
• Despite the growth capex, the company would deleverage from net debt/Ebitda of 2.5 times in FY19.

Watch | Managing Director Satish Pai on Hindalco’s outlook

Here are the highlights from the interview with Hindalco MD Pai:

• Expect higher operational performance for aluminium division in the second half of the financial year.
• Expect domestic demand for aluminium to also pick up in H2
• Expect volume pick up but lower realisation for copper division in H2
• Aleris acquisition will be completed by January 2020