Buy Hindalco Industries target of Rs 741: Prabhudas Lilladher

Prabhudas Lilladher's research report on Hindalco Industries

Hindalco Industries (HNDL) Q2FY25 delivered strong cons operating performance on strong India upstream AL business and stable Novelis. Indian business volumes were muted, but better pricing and lower operating cost benefited. Mgmt. guided for tad higher coal costs at Mahan and Renukoot operations on higher spot premiums, but impact of higher alumina prices will aid earnings. As scrap prices have increased over last few quarters led by higher scrap imports from China to maintain coal fired smelter capacity at 45mtpa, Novelis EBITDA/t can see negative impact in near term. Global economic headwinds can also limit volume growth as guided by competition. We expect Novelis contribution to remain soft in the next two quarters due to seasonality and lower spot scrap spreads and cut FY25/26E EBITDA/t assumptions to USD486/490 from USD525 earlier. We expect Novelis to deliver ~3.5% volume CAGR over the next 2 years as beverage can segment which is 58-60% of volumes remain strong. We factor in higher AL prices of USD2,474/USD2,578 for FY25E/26E from earlier assumption of USD2,413/USD2,454, higher standalone capex and cut cons. EBITDA by ~4% each.

Outlook

At CMP, the stock is trading at EV of 5.5x/4.8x FY26E/FY27E EBITDA. Retain ‘Buy’ rating with revised TP of Rs741 (earlier Rs847), valuing Novelis at 6.5x & standalone ops at 5x EV of Sep’26E EBITDA.