Hindalco

Hindalco is major aluminum manufacturer of India. In the recent market turmoil, it has been severely battered down by the FIIs. Let us look at its fundamental to gauge where it should be positioned in future.

As per source here, CMP of hindalco is 77 Rs (Closing on 22nd May, 2009). Its PE is 5.40, while the industry PE is 8.48.

The book value of the share is 127 Rs. Current price is at a discount of 40% to the book value.

Lets see its profit loss details as given here. It saw a dip in its operating profit in year 2008. I expect a dip in profit this year too but not substantial as prices of aluminum have more or less stabilised in the year 2008-09. The prices of aluminum are quoting at 10 year low as data given here. With the pick up in infrastructure and housing, the demand for aluminum would go up, resulting in price appreciation. This will increase the margins and profits of Hindalco. If we consider aluminum at conservative 2000 USD/mt in coming year or two, would translate into 40% increase in EPS of hindalco. This would mean the current price is quoting at a PE of only 3 for the year 2010-11.

Considering, the price is below the book value, PE less than industrial average and worst being over for aluminum sector, I recommend a buy on Hindalco with a target of 140 to 150 by March 2010.

Disclaimer: I have some shares of Hindalco at 47 Rs. Please do your due diligence before buying.