Enriching product portfolio for long term growth…
About stock: Hindalco, part of Aditya Birla group, is India’s largest fully integrated aluminium manufacturer. It also operates one of the largest custom copper smelters at a single location in Asia. Hindalco’s US based wholly owned subsidiary i.e. Novelis is the world’s largest aluminium flat-rolled products (FRP) producer and recycler.
• Consolidated Sales: India Aluminium: 16%, India Copper: 19%, Novelis: 65%
• Consolidated EBITA: India Aluminium: 35%, India Copper: 9%, Novelis: 56%
Investment Rationale
• India Business: Focusing value addition, enhancing downstream capacity Hindalco has embarked upon an ambitious capex spend of US$1.13 billion for Indian operations over FY24-28, with >70% being allocated towards expanding aluminium downstream capacity and speciality alumina domain. This is amidst Hindalco operating at nearly peak utilisation levels at its aluminium primary metal domain (capacity: 1.3 million tonne). This clearly outlays company’s value addition foray in Aluminium space and is expected to be earnings accretive in nature. Domestic aluminium demand in medium term is expected to double from ~4.5 million tonne (MT) in FY23 to ~9 MT by FY33 driven by incremental demand in infrastructure, packaging, automotive (Electric Vehicle) & renewable energy space, thereby acting as long-term structural positive. In copper space too, it is strengthening its VAP portfolio through superior copper alloy rods for railways and inner-grooved copper tubes for refrigeration and air conditioning. Consequently, with emphasis on enhancing downstream capacities, Sales/EBITDA on standalone basis at Hindalco is seen growing at a CAGR of 5%/10% over FY23-26E.
• Novelis: Capturing industry tailwinds with ambitious organic expansion Hindalco has sizeable presence in the international markets though its US based wholly owned subsidiary i.e. Novelis, which is the world’s largest aluminium flat-rolled products (FRP) producer and recycler. Novelis is the largest supplier of beverage can sheet with ~40% global market share (Ex China). It is also a prominent player in automotive, aerospace, and speciality product markets. Sensing the fundamental drivers for growth in beverage can and automotive domains it has embarked upon an ambitious project of 600 KT of aluminium rolling capacity in North America (Bay Minette). Commissioning of the project is expected by H2CY26, with a total project cost of US$4.1 billion. With focus on value added products, cost control measures & increasing share of recycling content, EBITDA/tonne at Novelis is seen at US$530 by FY26E (company’s medium-term guidance at US$600).
Rating and Target Price
• We have a positive view on Hindalco driven by its strategic capacity expansion at Novelis and Indian operations, structural drivers in place for healthy demand of Aluminium metal and controlled leverage on B/S (Debt: Equity at ~0.5x). We assign BUY rating on the stock with target price at ₹780 wherein we have valued it at 7.5x EV/EBITDA on FY26E
Click here to download IDirect Hindalco Conviction Idea April24
Leave a Reply