Buy Hindalco; target of Rs 233: Motilal Oswal

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Motilal Oswal 's research report on Hindalco

Hindalco’s (HNDL) subsidiary Novelis’ 1QFY21 operating results were weak (in-line). EBITDA was down 40% YoY to USD219m on like-to-like basis (excluding Aleris) due to the impact of COVID-19. However, business performance improved substantially with both volumes and margin now inching back to pre-COVID levels. We have raised our FY21/FY22E EBITDA estimates by 4%/6% and reiterate Buy. Note that valuation at 5.3x FY22E EV/EBITDA (~20% discount to 10-year average) does not factor in the expected ~9% CAGR in EBITDA over FY20-22E.

Outlook

Interest cost is expected at USD260-270m for the full year (v/s USD240m in FY20), which is lower than expected due to the lower prevailing interest rates.

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