Brokerages Favour Hindalco On Rising Aluminium Prices, Potential M&As

Brokerages HSBC and JP Morgan have raised estimates and target price for Hindalco Industries Ltd. on the back of global aluminium price forecast.

Healthy demand and clamp down on illegal and polluting plants in China is increasing aluminium prices, HBSC Global Research said in a report. The price outlook for metals, in general, is comforting investors, said JP Morgan adding therefore, they can now focus more on capital allocation.

Based on a Bloomberg's report on potential mergers and acquisitions in the U.S., HSBC noted that the Aditya Birla Group has kept aside $3 billion towards the acquisition of downstream capacities to expand their value-added product (VAP) portfolio.

HSBC lists down potential target for the proposed acquisition:

• Netherland-based Constellium NV
• US-based Aleris Corp

A close competitor to these companies, Novelis, would benefit from this acquisition as it can consolidate its leadership position in the VAP segment, added the HSBC report.

“There has, however, been no official statement from Hindalco on any proposed acquisition," said HSBC.

JP Morgan, however, expects Hindalco's stock price to remain within range till there is some clarity on potential acquisitions.

Ratings Check

JP Morgan

• Target price raised to Rs 270 from Rs 255
• Earnings per share estimate raised by 10 to 12 percent

HSBC Global Research

• Target price raised to Rs 285 from Rs 240
• Earnings before interest, tax, depreciation and amortisation (EBITDA) estimates to increase by 2 to 3 percent in financial year 2018-19.

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