IIFL Institutional Equities, a part of the IIFL Group, one of the leading players in the Indian financial services space, recommends “Reduce” Hindalco Industries.
According to IIFL Institutional Equities report, Novelis’ 3QFY13 adjusted Ebitda at US$185m (–13% YoY and –33% QoQ) was 25% below our estimate, primarily due to disruptions during ERP implementation at its key facilities in N. America.
Lower Ebitda and higher working capital leads to a cut in FY13 FCF guidance from US$650m to US$250-300m. Additionally, net debt increased by US$428m to US$4.9bn Novelis’ management expressed comfort on demand outlook but cautioned on profitability owing to pricing pressure.
Profitability of Hindalco’s domestic operations has significantly deteriorated and meaningful recovery is not in sight. The uncertainty at Novelis, the key support to consolidated earnings, could lead to de-rating. REDUCE, the brokerage added.
The report was published by IIFL’s Institutional Equities Research desk.