Buy Hindalco Ltd for the Target Rs1,220 by Motilal Oswal Financial Services Ltd
Earnings beat; outlook brightens as Oswego headwinds fade Consolidated performance
* Hindalco’s (HNDL) consolidated net sales stood at INR848b (+32% YoY and +9% QoQ), above our estimate of INR775b during the quarter. The growth was mainly driven by favorable metal pricing.
* Consolidated EBITDA stood at INR139b (vs. our estimate of INR106b), rising 76% YoY and 40% QoQ. This growth was led by a strong performance across businesses, including Novelis.
* APAT came in at INR87b vs. our estimate of INR56b (+118% YoY and 51% QoQ), led by better operating earnings.
* The company recorded an exceptional item of the costs associated with the Oswego fire, net of insurance proceeds and other insurance recoveries, amounting to INR23b (USD244m). Further, the business interruption recoveries of INR4.5b (USD47m) related to the Oswego fire are recorded under other income during the quarter
Aluminum business
* Upstream revenue stood at INR134b in 1QFY27 (+44% YoY), and EBITDA stood at INR73.9b (+81% YoY; USD2,331/t), backed by favorable macros and stronger operational performance.
* Downstream revenue stood at INR49b (+46% YoY), whereas downstream EBITDA was INR3b (+30% YoY), led by a better product mix and higher shipments.
* The downstream EBITDA/t stood at USD303 (+15% YoY and 25% QoQ) in 1QFY27, led by a change in product mix and premiumization benefits.
* Upstream aluminum sales stood at 335kt (+3% YoY), while downstream aluminum sales were 104kt (+3% YoY) in 1QFY27.
Copper business
* Copper business revenues stood at INR172b (+16% YoY), on account of higher average copper prices.
* EBITDA for the copper business came at INR9b in 1QFY27, up by 36% YoY and 1% QoQ, backed by strong operational performance and higher realization of by-products like sulphuric acid, despite a planned major smelter maintenance.
* Copper metal sales stood at 105KT, down 16%, and CCR sales were at 96KT (-8% YoY) in 1QFY27.
Valuation and view
* HNDL posted strong earnings in 1QFY27, where the growth was primarily driven by favorable pricing, better domestic product mix, and higher by-product pricing, along with the outperformance of Novelis earnings.
* Going forward, we believe the earnings outlook for the India operations to remain strong and Novelis to start recovering from the Oswego-led volume disruption, which resulted in additional costs to service customers.
* We expect 2H earnings to remain softened for both Indian operations as well as Novelis on account of the recent aluminum price reversal to USD3,200/t from a peak of USD3,850/t during the Middle East crisis. However, the strong volume outlook in 2H will support earnings positively.
* We raise our revenue/EBITDA/APAT estimates for FY27 by 9%/22%/ 33%, factoring in the strong 1Q earnings beat due to elevated commodity prices, cost savings, and recovery in Novelis’ earnings.
* At CMP, the stock trades at 6.7x EV/EBITDA and 1.6x P/B on FY28E. We reiterate our BUY rating on HNDL with a SoTP-based TP of INR1,220
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
