Buy Hindalco Industries; target of Rs 773: Prabhudas Lilladher

Prabhudas Lilladher's research report on Hindalco Industries

Hindalco Industries (HNDL), at its annual investors’ day, outlined its long-term strategy for both India business and Novelis. Out of already announced USD5bn India capex, HNDL is investing ~USD2bn and USD1.6bn in upstream businesses of aluminum and copper,respectively, while the rest would be spent on various downstream projects and coal mining. With captive coal mines getting ramped up by FY29E, HNDL would invest further USD2.2bn for 360ktpa smelter expansion at Mahan. With strong LME, ramping up of ongoing high margin downstream projects and improving RM security, Indian operations are expected to drive EBITDA growth over next few years. Novelis is focused on completion of USD4.1bn Bay Minnette capex by H2CY26 and targeting to ramp up over FY28-29 to replace existing ~500kt imports in the US markets. Further expansion can be planned in the next phase at a much lower capex of USD1,500/t once this 600ktpa project is commissioned. Although Novelis is working on mitigating higher scrap pricing concern by strengthening supply chain, consuming dirtier scrap and improving recycling rates, we maintain our EBITDA/t assumption of USD440/480 for FY26/27E. Near term delivery would be better on account of: a) higher volumes and better product mix, b) new higher priced can contracts, activated from CY25, and c) higher recycled content.

Outlook

At CMP, the stock is trading at EV of 5.8x/5.2x of FY26/27E EBITDA. Retain ‘Buy’ rating with revised TP of Rs 773 (earlier Rs804), valuing Novelis at 6.5x & standalone ops at 5.5x EV of Mar’27E EBITDA (increased from 5x on higher capex and steady contribution).