This Largecap Metal Stock Could Surge 34%, "Buy" Says Motilal Oswal

Motilal Oswal, a leading brokerage house has suggested investors to buy a stock of Hindalco Industries Limited, a largest player to manufacture aluminium and copper. Based on the analyst coverage report, this metal stock price could increase upto Rs 600 per share, 34% growth from Rs 447 per share. The estimated value was derived at, after looking at the company's progress during the quarter.

Sneak peak of Hindalco's revenue of the quarter

Novelis, Hindalco's wholly own subsidiary's financial performance was weak which dragged down and affected the earnings before interest tax depreciation and amortisation (EBITDA), was reported in the brokerage coverage report." Novelis reported a weak financial performance in 3QFY23, missing our estimates. The performance was affected by lower shipments due to beverage packaging destocking and a weak macro scenario. Revenue/adjusted EBITDA/APAT declined by 12%/32%/39% QoQ to USD 4,021 million / USD 341 million / USD 145 million. Revenue was in line with our estimate, while adjusted EBTIDA/APAT significantly missed our estimates of USD 427 million / USD 175 million. EBITDA was affected by lower volumes, higher operating costs and negative forex impact of USD 18 million. EBITDA per tonne at USD 376 /tonne (-31% YoY/-26% QoQ) was below our estimate of USD427 /tonne. Shipments stood at 908kt (-2% YoY/-8% QoQ), 9% below our estimate of 1,000 kilo tonne."

Hindalco's management's guidance

According to the brokerage coverage report, the company management has shared the long term target details. "As indicated by the management during the 2QFY23 call, high energy prices and logistics costs affected 3QFY23 EBITDA/tonne (at USD 135/tonne). However, the management during the 3Q call has indicated that 4QFY23 EBITDA/tonne is expected to surpass USD 400/tonne and the company has maintained its long term target of USD 525/tonne. Some of the contracts are reset from 1st Jan'23 and other contracts will be reset from 1st Apr'23 at much higher rates, which will help the company to improve margins and push for higher EBITDA/t of USD 525/t on normalized basis."

Motilal Oswal's Outlook: Buy stock of Hindalco Industries , with a target price of Rs 600 per share

Motilal Oswal believes that Hildalco's ratio on debt per EBIDTA would improve and explains the reasons for the suggestion of buying the stock of Hindalco Industries Limited. " We note that the stock now fully prices in 1) lower London Metal Exchange (LME) aluminum prices, 2) a weak macro economy, 3) recession in Europe, 4) rising inflation reflected in higher input costs and lower premiums. As a result, we believe that Novelis reflects strongly on long-term opportunities rather than focusing on just one quarter of weak operating results. We believe the weakness in the stock post the 3Q results should be an opportunity to buy as we remain confident about long-term opportunities for Novelis and its leadership in both beverage can and automotive markets. Our SoTP-based price target for Hindalco works out to Rs 600. The stock is trading at 5.3x/3.8x our FY23E/24E EV/EBITDA and 1.3x FY24E P/B. Maintain BUY."

The current market price of Hindalco stock is Rs 430 per share and its market capitalisation is Rs 96,629.37 crore. Within six months the stock price has increased by 2.14% but it declined by 17.62% over a year. The 52-week high of the stock price is at Rs 636 per share, while the 52-week low is at Rs 309.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.