Hindalco Industries

RBS maintains `Buy’ rating on Hindalco and raises the sum-ofthe-parts target price to Rs 180, reflecting the new earnings estimates for Hindalco. The RBS team raised its aluminium price forecast by 5-10% for ‘10-12 in the report. After a decline of 8% in ‘09, RBS expects aluminium consumption to increase 10% in ‘10 and 8% in ‘11-12. The metal’s widespread usage, which led to the ‘09 decline, is expected to provide a flipside to demand going forward, as global economies improve.

However, high inventory levels remain a threat to significant price upside. On the other hand, combined LME and Shanghai aluminium inventory q-o-q growth was at its lowest for two years in Q4FY09, which may mark the start of a trend. With Hindalco’s fully integrated domestic operations, any increase in aluminium prices directly flows to its bottom line. Hindalco offers strong exposure to aluminium prices and future low-cost capacity creation, given its plans to triple domestic capacity in three to five years.