Hindalco Industries Ltd.'s globally competitive aluminium production and products businesses make it a unique bet for Bank of America Merrill Lynch.
It's the most bullish on the stock among brokerages tracked by Bloomberg. BofAML initiated coverage on Hindalco with a ‘Buy' rating and a 12-month price target of Rs 340 apiece, the highest estimate suggesting an upside potential of 22 percent from the current market price.
What makes India's largest aluminium producer attractive for the research house is:
- Improvement in costs and profitability of upstream operations.
- Widening margins of its subsidiary Novelis
- Lucrative growth in high-margin alumina business.
- Superior margins in India with entry into niche products.
BofAML said Novelis is “uniquely positioned” in global rolled products with its ability to supply advanced aluminium fibre reinforced polymers, including auto products, with production facilities in all four major industrialised continents.
It expects 17 percent expansion in the company's Ebitda per tonne over the financial years through March 2020, with contribution from high-margin auto shipments potentially rising by 700 basis points to 25 percent by March 2020. “Novelis will contribute more than 54 percent of the consolidated operating income during the period.”
Shares of Hindalco outperformed 12-month consensus forecast made at the start of 2017 by 41 percent. The stock rose for the second straight day by as much as 2.7 percent to Rs 279.4 apiece in a flat Mumbai market.
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