IIFL has downgraded its rating on Hindalco Industries to sell with a target price of Rs 46 in its April 16, 2009 research report.
“We expect Hindalco’s profitability and cash-flow to remain under severe pressure due to: 1) lower aluminium prices; 2) shipments and profitability at Novelis remaining under pressure; and 3) lower byproduct prices in copper business. Profitability of the domestic business is unlikely to recover meaningfully even in FY11, as we expect a surplus of over 1million tonne in aluminium for the next couple of years. Among subsidiaries, high-cost copper mines in Australia will suffer on account of a slide in copper prices, and Novelis is hit by weak demand in key geographies. These factors represent significant downside risk to earnings estimates. Hindalco has rallied by 65% over the past one month and is trading at EV/EBIDTA of 5.5x on FY10ii (note that earnings are bolstered by purchase accounting adjustments). We downgrade the stock to SELL, target price of Rs 46,” says IIFL’s research report.
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