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Hindalco (HNDL IN; Mkt Cap USD10.2b, CMP Rs228, Buy)
- Hindalco’s subsidiary Novelis reported strong 2QFY11 adjusted EBITDA of US$290m vs est. of US$250m (+47% YoY and +10% QoQ).
- Total shipments increased 6% YoY to 767,000tons. Shipments were slightly lower by 2% QoQ due to lower shipments in Asia.
- EBITDA per ton continued to increase for 6th consecutive quarter to US$378/ton due to continued strong demand, product portfolio optimization.
- Novelis announced closure of Bridgnorth plant. This will allow incremental production of higher margin products and cost savings of about US$15m.
- Net debt came down by US$97m QoQ to US$2.1b after incurring Capex of US$37m and working capital increase of US$83m.
- Stock trades at an EV/EBITDA of 6.9x FY11 and 6.4x FY12. We are raising our Target price from Rs230/share to Rs260/share based on 7x FY12 EV/EBITDA. We have toned down target EV/EBITDA multiple from 7.5x to 7x due to upgrade in LME assumption and best ever performance of Novelis. Maintain Buy.
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