ARSL recommends Buy on Hindalco Industries

ARSL has recommended `Buy` on Hindalco Industries with a price target of Rs 191 as against the market price (CMP) of Rs 172 in its report dated May 11, 2010.

Hindalco's standalone 4Q revenue was flat q-o-q on lower metal volume. EBITDA margin improved on higher LME prices and better by-product realization. The company`s domestic expansion projects are progressing well. Retain Buy.

Hindalco`s turnover was flat qoq despite higher LME prices, owing to lower volume in the copper business. Cathode production was down 16% q-o-q due to a smelter shutdown for planned maintenance. Aluminium production also declined 3% qoq to 138,000 tons.

Operating margin improved 120bps q-o-q to 15.9%. While aluminium margin was driven by higher aluminium realization, copper margin improved on higher acid realization (Rs 2,000/t in 4Q vs Rs 900 in 3Q) and increased sale of value-added copper rods.

Hindalco`s greenfield and brownfield expansion plans are progressing well. The 1.5 million ton Utkal alumina refinery as well as the Mahan aluminium project are likely to be completed by 2QFY12.

We value its domestic operation at 8x FY11e EV/ EBITDA and Novelis at 6x FY11e EV/EBITDA. Subsidiaries are valued at Rs 17 per share. Our sum-of-parts value for Hindalco is Rs 191,`` the broking house said.