ICICIdirect.com is bearish on Hindalco Industries and has recommended sell rating on the stock with a target of Rs 108 in its May 30, 2014 research report.
"Hindalco Industries reported robust metal production in Q4FY14 with copper cathodes production coming in at 96 KT while aluminium metal production came in at 175 KT and alumina at 465 KT. The aluminium metal production includes production from new facilities, which were commissioned during the quarter. The EBITDA margins, however, came in subdued at 10.0 percent. The PAT came in lower on account of an increase in depreciation & interest expense due to commissioning of new facilities and exceptional item amounting to Rs 396 for the quarter."
"Hindalco is a metal major with business interests in copper smelting & aluminium manufacturing domestically. It is also a leading aluminium converter globally through subsidiary Novelis. On the domestic aluminium business front, the company is undergoing an ambitious capacity expansion wherein its aluminium (primary metal) production capacity will increase from 560 KT currently to 1278 KT by FY15E. With trial runs & commissioning at an advanced stage, we expect domestic aluminium metal production to grow at 16.6 percent CAGR in FY14-16E. The company has commissioned the Mahan aluminium smelter (capacity 359 KT, 900 MW) with first metal tapped in Q1FY14 and is ramping up the same for commercial production. The company has also tapped first metal at its Aditya smelter (capacity 359 KT, 900 MW). However, commercial production from this smelter is expected only in H2FY15. To feed the abovementioned smelters, Hindalco has also commissioned its Utkal alumina refinery (capacity 1.5 MTPA) and is ramping up the same."
"The company has received stage-2 forest clearance for its Mahan coal block subject to certain conditions. The next important step would be signing of liming lease with the state government and subsequent mine development, which is likely to take ~18-24 months. However, high debt on its books (gross debt FY14: Rs 63348 crore) continues to weigh on the valuation front (core business quoting at 7.7x FY16E EV/EBITDA). Given the capex guidance by the company for FY15E we expect debt to remain at elevated levels with possible reduction from FY16E onwards. We have valued the company on an SOTP basis, thereby arriving at a target price of Rs 108. We maintain our SELL rating to the stock," says ICICIdirect.com research report.
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