Hindalco eyes $945 million gain from Novelis' US IPO; brokerages bullish, see 13% upside

Hindalco is planning to raise $945 million at the upper end of the price band and is targeting a valuation of up to $12.6 billion. Novelis has applied to list its common shares on the New York Stock Exchange under the ticker ‘NVL’.

Shares of Hindalco gained on May 29 as the Aditya Birla Group firm is set to list its US subsidiary Novelis on the New York Stock Exchange (NYSE), offering 45 million shares at $18-21 apiece.

This represents 7.5 percent of Hindalco’s current stake in the company, according to public disclosures. Novelis’ IPO (initial public offering) could generate up to $945 million for Hindalco as proceeds from the offer for sale.

Notably, Hindalco acquired Novelis in 2007 in a deal that valued it at $6 billion, and will be the sole beneficiary of the proceeds. At the $18-21 price range, Novelis is valued at up to $10.8-12.6 billion.

Also Read | Aditya Birla subsidiary Novelis files for US IPO, price band at $18-21 per share

This valuation implies a range of 7.7 to 8.6 times for Novelis compared to its earnings, said CLSA. The brokerage's valuation of Novelis at 6.5 times FY26 EV/EBITDA is integrated into Hindalco's Sum of the Parts (SoTP) analysis.

CLSA maintained a 'Buy' rating on Hindalco with a target price of Rs 770 per share. Key discussions surrounding the deal are expected to focus on the valuation of Hindalco's stake in Novelis, its SoTP and the utilization of proceeds from the IPO, it said.

If the greenshoe option in the stake sale is exercised, the IPO proceeds could reach up to $1.08 billion at the upper end of the price band, a media report said. Based on the net debt of $4.35 billion, according to the US Securities and Exchange Commission (SEC) filing, the enterprise valuation of the company is estimated between $15.2 billion and $17 billion.

Considering the buoyancy in US equity markets and expectation of strong prospects, analysts at Prabhudas Lilladher expect Novelis to receive the higher end of valuation.

The brokerage maintained its 'buy' rating on Hindalco stock with a with 6.5x EV multiple to Novelis and 5x to India business, as Novelis performance is improving in the near term and India business will improve on higher LME, it said.

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On May 28, Hindalco shares closed marginally higher at Rs 680.00 on the National Stock Exchange (NSE). In the last one year, the stock has rallied nearly 62 percent, outperforming benchmark Nifty 50 which rose 23 percent during this period.

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