Focus on Cutting Debt, Firm Metal Prices to Aid Hindalco
Co to use large part of cash flow to reduce debt to 52k-cr by March-end; recovery in demand post demonetisation to reflect in Q4
aluminium price of $1700 per tonne (which is 10% lower than the current LME aluminium price) and a steady performance of its US subsidiary Novelis, Hindalco should achieve consolidated EBIDTA or operating profit of ₹ 14,000 crore for FY18. This would mostly go in repaying debt. Hindalco’s capex, unlikely to cross ₹ 1,000 crore in the next one year, would be towards downstream projects and help in lowering cost. Against an EBIDTA forecast of ₹ 14,000 crore, the stock is currently trading at 5.8 times its EV (enterprise v a l u e ) by E B I D TA o f F Y 1 8 . Historically, the scrip has traded in the range of 7 to 8 times when earnings growth has been strong.
Novelis accounts for around half of the company’s revenue; its earnings are fairly stable as the US subsidiary primarily converts aluminium into beverage cans and vehicle body sheets. The company is less affected by volatility in aluminium prices.