Buy rating on Hindalco Industries is maintained with a target price of Rs.179 as against the earlier
target price of Rs.186.
Though the company’s standalone performance was up to market expectations in 3QFY12, Novelis’
EBITDA missed expectations. Considering this along with lower metal prices, hardening rupee against
USD, higher coal prices and slower execution of Mahan smelter, EPS estimates for FY12 has been
reduced by 10 -17%. Hence, the target price is lowered to Rs.179.
Company’s standalone outperformance was driven by better than expected aluminium premium.
However, cost pressure on domestic aluminium business still persists.
Start up Mahan smelter has been delayed.
Novelis’ volume and margin will recover but this may take 1-2 quarters.
It seems that the stock price would hinge on aluminium price recovery and timely execution of
expansion projects.
Further delays in expansion projects and sharp increase in coal prices are downside risks.
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