Buy Hindalco; target of Rs 267: Motilal Oswal

Motilal Oswal 's research report on Hindalco

Hindalco (HNDL)'s subsidiary Novelis' 2QFY21 EBITDA surprised with 20% YoY growth to USD455m (est. USD348m). This was led by 11% YoY volume growth (Aleris acquisition) and adj. EBITDA/t of USD493 (est. USD396). Management has raised the sustainable EBITDA margin guidance for Novelis to USD480-500/t (from USD450-475/t). We raise our FY21E EBITDA by 7%, factoring in strong margins for Novelis. Deleveraging is also playing out well, with strong FCF and asset divestitures - while the sale of Duffel has been completed, the sale of Lewisport has been finalized for a cash consideration of USD171m (EV of USD330m). Reiterate Buy.

Outlook

The stock trades at 5.1x EV/EBITDA and 7.9x P/E on FY22E. We value it at INR266/share on an SOTP basis. Reiterate Buy.

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