SELL IndiaBulls + Hindalco – Citi

Citigroup Research has recommended a SELL on Indiabulls and Hindalco Industries Ltd.

Indiabulls Ltd
Under best case assumptions, Indiabulls can potentially be valued at Rs930 per share, with new initiatives [Life Insurance, Asset Management, Institutional Broking, Private Equity, Commodity Exchange etc] at Rs152 per share on FY09 estimates and a value of Rs778 per share for existing brokerage and finance businesses. Are they trying to be another Reliance capital ?

Citi maintain base case estimates, valuation and recommendation (Sell, 3M) as it is still too early to ascribe any definite values to these businesses pending execution.

Target price is Rs550 based on a sum-of-the-parts calculation. Apply an 18x FY09E earnings multiple based on the Sensex FY09E multiple of 19x. Citi does not apply a discount to market multiple as Indiabulls continues to retain its market share despite increasing competitive pressures. This values the broking business at Rs192. Maintain a target multiple of 2.0x FY09E PBV for the asset finance businesses on sustained high growth in the portfolio and factor in additional capital raised. This values the asset finance business at Rs358.

Dalal Street Analyst Reco
If you hold Indiabulls, do not exit completely, but you can partially SELL and look at different opportunities.

Hindalco Industries Ltd
Hindalco’s PAT at Rs6.4bn came in above expectations on lower tax and better than anticipated copper TC/RCs. EBITDA fell by 7% yoy due to pressure on realizations. We revise PAT estimates for FY08E-09E by 1% to -3% on changes in LME prices, exchange rates and TC/RC margins, FY07 Annual Report details and 1HFY08 trends.

With weaker aluminium realizations given an appreciating rupee, lower copper TC/RC margins, and rising input costs, we expect a 14% fall in cons FY09E EPS. However, we marginally adjust our TP from Rs142 to Rs146 on: our target multiple raised from 7x to 8x (mid-point of recent trading range), which gives Rs128, to which we add value of IDEA Cellular holding; upward re-rating of metal stocks; and rollover to FY09E EPS.

EPS expectations for FY08 and FY09 are Rs 19.8 and Rs 14.4 respectively. Citi maintains a Sell with a target price of Rs 146.