CLSA Hikes Target Prices of Vedanta, Hindalco by 10-14%
- CLSA hikes price target of Vedanta by 10.7 percent, says company poised for strong operational turnaround.
- Brokerage hikes Hindalco's price target to Rs 160, believes stock can return 66 percent in two years.
CLSA hiked price targets of two metal majors, Vedanta Ltd. and Hindalco Industries Ltd. by 10.7 percent and 14.3 percent respectively, according to two separate research reports by the brokerage.
On Hindalco
The brokerage has reiterated its ‘buy' rating on Hindalco with a target price of Rs 160. The hike comes even after the stock doubled from its February lows. In a July 6 report, CLSA says the stock has the potential to return 66 percent in two years.
Improving aluminium prices and a potential positive surprise on Novelis' margins in FY17 could lead to gradual balance sheet deleveraging along with improving free cash flow to firm (FCF), CLSA says. The brokerage believes this should boost Hindalco's equity value by a meaningful 11 percent per annum.
CLSA hiked the company's FY17 operating profit forecast by 5 percent and estimates a strong 17 percent operating profit at compounded annual growth rate over the next three years, even if aluminium prices do not improve from current levels.
Shares of Hindalco rose over 3 percent to Rs 127.80 by 12 noon on BSE.
On Vedanta
Shares of Vedanta Ltd. too rose after CLSA increased its target price to Rs 166 from Rs 150, while reiterating its ‘buy' rating.
CLSA believes the company is poised for a strong operational turnaround led by improving volume growth in aluminium, power and iron ore businesses as well as falling costs. Commodity prices have recovered from their early 2016 lows, with fundamentals improving, particularly for zinc. Rising operating cash flow (OCF) and limited capital expenditure should drive strong free cash flow to firm (FCF) and deleveraging, the brokerage says.
Another swing factor that CLSA believes could improve cash fungibility and Vedanta's valuation multiples is the rising probability of the the company's merger with Cairn India Ltd.CLSA has raised Vedanta's FY17-FY19 earnings per share by 9-26 percent and expects a strong 20 percent operating profit (or EBITDA), at compounded growth rate, over the same period, assuming commodity prices remain at current levels.
Shares of Vedanta were trading nearly 3 percent higher at Rs 141.05 around 12 noon, its highest level in nearly a year.
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