Buy Hindalco; target of Rs 195: Greshma Research

Greshma Research is bullish on Hindalco and has recommended buy rating on the stock with a target of Rs 195 in its July 12, 2011 research report.

?Hindalco, we expect Novelis to post encouraging numbers going ahead on account of expansion, restructuring and debottlenecking activities undertaken by the company. The EBITDA/tonne of the company has stabilized at above $300 levels. We expect aluminium prices to be stable on the back of strong demand in sectors like aerospace. We are expecting aluminium prices to grow by 10% CAGR in next two years. Hindalco is among the lowest-cost aluminium smelters in the world with the over all capacity 500ktpa and company has successfully managed its cost with captive power, bauxite and coal blocks that company owned. Its 1.5m tpa Utkal alumina project in Orissa is likely to be commissioned by 2012.

?We assume the delay in Mahan coal block allocation is likely to increase input cost for the Mahan Smelter which is likely to be finished by FY12. The 359,000 ton Mahan smelter is likely to be commissioned in end-CY11. We are expecting overall capacity to rise by 1.2 mton by 2014 with the new capacity coming in Orissa. We are expecting overall capacity to rise by 1.2 mton by 2014 with the new capacity coming in Orrisa. We value the company at 5.7 times one year forward EV/EBITDA and recommend BUY on the stock with a price target of Rs 195 for a 1-year investment horizon,? says Greshma Research report.