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Hindalco (HALC.BO): Downgrade to Neutral on valuations
We downgrade Hindalco to Neutral from Buy as the stock is close to our new 12-month
P/B-based TP of Rs207, yielding limited potential upside. Since we added it to our Buy List
on June 28, 2010, Hindalco has risen 43% vs. 15% for Sensex. In the past 12 months, the
stock has risen by 76% vs. Sensex up by 28%.
In our view, post the recent outperformance led by aluminum prices and strong Novelis’
performance, the risk-reward looks balanced for Hindalco relative to its peers and its
trading history—the stock is currently trading at 1.4X FY12E P/B (mid cycle P/B: 1.4X) with
13% ROE.
We revise our FY2011E-FY2013E EPS by 4% to 23% to account for higher aluminum prices.
Subsequently, we revise our 12-month P/B-based target price to Rs207 (from Rs191
previously), implying 4% potential downside. Key upside risks include stronger-thanexpected
aluminum prices; downside risks include delays in project execution.
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