Robust performance, profitable growth lies ahead
About stock: Hindalco, part of Aditya Birla group, is India’s largest fully integrated aluminium and copper manufacturer. US based wholly owned subsidiary i.e. Novelis is the world’s largest aluminium flat-rolled products (FRP) producer and recycler.
• Consol. Sales (FY24): India Aluminium: 19%, Copper: 22%, Novelis: 59%.
Q1FY25 Results: Hindalco reported healthy performance in Q1FY25 results. Consolidated topline stood at ₹57,013 crore (up 8% YoY, 2% QoQ). Reported EBITDA for the quarter stood at ₹7,585 crore (up 32% YoY) with corresponding EBITDA margins at 13.3%, up 250 bps YoY. PAT stood at ₹3,074 crore, up 25% YoY.
Investment Rationale
• India Business- Downstream expansion will aid healthy margins: Hindalco delivered a robust performance in Q1FY25, with EBITDA/tonne of ~US$1273 and ~US$811 in India primary aluminium and copper segment, respectively, driven by better realization and lower input cost. With ongoing capacity expansion in downstream space, it is expected to further enhance margins, as $1.13 billion of capex is strategically and primarily aimed at value added products, which are inherently more profitable. This expansion is well timed, as domestic demand for aluminium is projected to double from ~4.5 million tonne (MT) in FY23 to ~9 MT by FY33, fuelled by demand from infrastructure, packaging & sunrise sectors such as Electric Vehicle & renewable energy space. In copper domain too, it is strengthening its VAP portfolio with superior copper alloy rods and inner-grooved copper tubes for refrigeration and air conditioning. Thus, with emphasis on enhancing downstream capacities, Sales and EBITDA on standalone basis is seen growing at a CAGR of ~7%/11% over FY24-26E.
• Novelis-ambitious organic expansion seizing industry tailwinds: Hindalco has a strong foothold in international markets through its US based wholly owned subsidiary, Novelis, which is the leading global supplier of beverage can sheet with ~40% global market share (Ex China). With ongoing capacity expansion of 600 KT of aluminium rolling capacity in North America (Bay Minette), thereby aiming to capitalize on growing opportunities in beverage can and automotive domains. This ambitious project is set to operational by H2CY26 at a total project cost of US$4.1 billion. Given the continue focus towards value added products, cost control initiatives & increasing share of recycling content, we project EBITDA/tonne to reach $525/tonne by FY26E amid its medium-term guidance of US$600/ tonne. Novelis listing could be added positive whenever it gets executed.
Rating and Target Price
• We maintain our positive view on Hindalco supported by strategic capacity expansions at Novelis & Indian operations, robust demand drivers for Aluminium metal & controlled leverage (D/E at ~0.5x). We assign a BUY rating on the stock, valuing it at ₹825 i.e. 7.5x EV/EBITDA on FY26E.
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