Edelweiss: 'Buy' Hindalco

Edelweiss, in a results update, has maintained its "Buy" rating on Hindalco.

In a report released on July 28, the brokerage said: "Hindalco's Q1FY07 results were in line with our expectations. Notwithstanding the writeback of the Target Plus benefits for FY06, the key highlight of the quarter was the improved profitability of the copper business despite a planned shutdown. On expected lines, copper business volumes improved post stabilisation of the refurbished smelters and higher TC/RCs aided profit growth. The aluminium business maintained its stellar performance on the back of higher realisations, effective cost controls, and an enriched product mix.

"Topline rose 94% YoY on the back of higher realisations in both aluminium and copper due to a firm trend in LME prices. Higher cost of inputs like fuel oil, bauxite and energy led to EBITDA growing only 54% YoY and EBITDA margins compressed 550 bps YoY.

"We believe that with the copper business' operating performance bouncing back, aluminium business on a strong footing, and progress on its growth projects, FY07 should be a year of strong earnings growth at Hindalco.

"At a CMP of INR 162, the stock trades at an EV/EBITDA of 4.1x and P/E of 7.1x FY07E and continues to look attractive. We believe in Hindalco's long-term growth and reiterate our 'BUY' recommendation."

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