>HINDALCO(Merrill Lynch)

Downgrade to Underperform; PO cut to Rs40 (earlier Rs60)
Our global team has cut aluminum forecasts. This leads to a sharp cut to our EPS
forecasts – by 37-80% over FY09-11. Even though the stock has underperformed,
we believe there is further downside given its rich valuation – FY10E P/E of 37x
and P/B of 0.7x (excl goodwill for Novelis acquisition). Hence we downgrade our
rating from Neutral to Underperform. Our new PO of Rs40 (based on 50%
discount to DCF) suggests 24% downside and implies P/B (ex goodwill) of 0.5x, in
sync with other leveraged steel stocks in India.

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HINDALCO(Merrill Lynch)