The most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. You don’t have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company’s future capital requirements, so it does not give a full picture of a company’s potential performance. Given that we are looking at Hindalco Industries as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we’ve used 21%, which is based on a levered beta of 1.519. Beta is a measure of a stock’s volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.
Hindalco Industries Ltd, together with its subsidiaries produces and sells aluminum and copper product. Currently it is trading at 47.6% below its fair value. Current share price of Hindalco is Rs 113.80 which is lower than the fair value Rs. 217.34. Hindalco is trading below fair value by more than 20%. Hindalco is good value based on its P/E ratio (5.9x) compared to the metal and mining industry average (6.7x). It is also a good value based on its P/E Ratio (5.9x) compared to the Indian market (9.9x). It has poor value based on its P/E Ratio (2.1x).
Annual earnings growth of Hindalco Industries is forecasted to grow 2.8%. Its forecasted earnings growth (2.8%) per year is above the saving rate (0.7%). HINDA's earning 2.8 percent are forecast to grow slower than the Luxembourg market (12.4%) per year. Its revenue is forecasted 2.8% per year to grow slower than 20% per year. Return on Equity is forecast ed to be low in 3 years’ time (7.4%).
Earning and revenue growth forecasted for the year 2020, 2021, 2022, 2023:
Free Cashflow (Rs)
Cashflow from Operation (Rs)
Future annual earnings growth rate of Hindalco is 2.8 percent whereas the future growth rate of the industry is 11.y percent and that of the whole market is 12.4 percent. It means Hindalco Ltd is growing at a slow pace as compared to the growing rate of industry and market.
Forecast annual revenue growth rate of Hindalco Industries is less than that of the Industry (1.5%) and market (3.2%).
Financial Health of the company:
Hindalco Industries has good financial health. We can get the deep financial health of the company by seeing the following data: short term asset of Hindalco Industries is (Rs. 519.4 b) which exceeds its short-term liabilities of (Rs.314.5 b). After that its long-term assets is Rs. 1.0p t which more than the its long-term liabilities. It means the company has good financial health. HINDA'S debt to equity ratios (95.2%). It is reduced from 168.1% to 95.2% over the past 5 years. And further it will also reduce because the solvency and Liquidity position of the company is good. HINDA's debt is well covered by operating cashflow (21.7%). And its interest payment on its debt are well covered by EBIT (3.1x) coverage. By Analyzing this data, we can say that the company is running in good condition and will perform better in future.