Hindalco rating: Reiterate ‘buy’; Rs 190 per share based on SOTP

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Published: June 16, 2020 8:47 AM

Hindalco India (standalone+Utkal) Ebitda was up 18% q-o-q (6% y-o-y) to Rs 1,440 crore.

Hindalco rating, Hindalco’s Q4FY20 results, Hindalco India, India Ebitda, Hindalco India FY20 revenueFor FY21, the management has guided for 1% y-o-y fall in aluminum volumes whereas copper volumes are expected to remain flat.

Hindalco’s Q4FY20 results highlight the potential for cost cut in its India business as India Ebitda rose 18% q-o-q despite weak LME. Aluminum costs fell 5% q-o-q and should fall another 4-5% q-o-q in Q1FY21, partly off-setting the impact of lower LME. We maintain our FY21/FY22E Ebitda estimates and reiterate our ‘buy’ rating on expected deleveraging in FY22E, supported by lower capex, cost control and
resilient volumes.

Hindalco India (standalone+Utkal) Ebitda was up 18% q-o-q (6% y-o-y) to Rs 1,440 crore. Adj. Ebitda stood at Rs 1,340 crore, up 10% q-o-q. The Ebitda beat was driven by lower cost of production in aluminum business. Adj. PAT rose 47% q-o-q to Rs 340 crore. Aluminum Ebitda was up 8% q-o-q to Rs 1,040 crore; Ebitda/t rose 11% q-o-q to $457. Realisation was down 1% q-o-q to $2,322/t due to a 3% q-o-q fall in LME; but it was offset by higher hedging gains and currency depreciation. Aluminum production was up 2% y-o-y to 327kt, whereas sales were down 3%/4% y-o-y/q-o-q to 314kt, due to the lockdown in March end. Hindalco India’s FY20 revenue/Ebitda/Adj. PAT fell 12%/29%/65% y-o-y to Rs 403/ Rs 48/ Rs 9.3b due to lower commodity prices.

For FY21, the management has guided for 1% y-o-y fall in aluminum volumes whereas copper volumes are expected to remain flat. The company has lowered its capex guidance to Rs 1,500 crore for the India business. Consolidated net debt stood at Rs 39,600 crore implying net debt/Ebitda of 2.8x. With ~75% Ebitda contribution now coming in from non-LME business (Novelis+Aleris), we see relatively higher stability in Hindalco’s earnings. Moreover, lower capex and consistent FCF generation should aid deleveraging. The stock trades at a reasonable valuation of 5.4x EV/Ebitda and 7.9x P/E on FY22E. We value it at Rs 190 per share based on SOTP. Reiterate ‘buy’.

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