Prabhudas Lilladher's research report on Hindalco Industries
Hindalco (HNDL) hosted analyst meet to explain its capex programs and capital allocation policy over next five years. Given the strong B/S and steep reduction in leverage, announcement of large capex in both Novelis and India was expected for last couple of quarters. The major chunk of capex (~75%) in Novelis would be spent on 600kt of integrated greenfield rolling & recycling mill in US and 450kt of brownfield rolling & recycling capacity in Brazil. Post expansion, Novelis’ Rolling and Recycling capacity would increase by 45%/50% to 5.8mnt/3.9mnt by FY27e. In India, ~60% of capex would be spent on 180kt brownfield Aluminium (AL) smelter, 1mnt greenfield Alumina refinery and development of recently acquired coal mines in Odisha. Novelis posted sharp expansion in margins over last one year. However, we see significant headwinds to its margins and volumes due to abnormal AL prices, narrowing scrap spreads and elevated cost pressures. We also believe that restricted supplies from Russia and high AL prices would result in restart of idle capacity in China. China’s daily AL output increased to 9-month in February.
Outlook
Given the significant outperformance of stock, limited upside and reasonably priced valuations, we downgrade stock to Hold with revised TP of Rs673 (earlier TP of Rs645) with an EV/EBITDA of 6.6x FY23e.
More Info
At 13:15 hrs Hindalco Industries was quoting at Rs 573.85, down Rs 25.95, or 4.33 percent.
It has touched an intraday high of Rs 599.65 and an intraday low of Rs 573.15.
It was trading with volumes of 389,508 shares, compared to its thirty day average of 468,223 shares, a decrease of -16.81 percent.
In the previous trading session, the share closed down 4.94 percent or Rs 31.20 at Rs 599.80.
The share touched its 52-week high Rs 636.00 and 52-week low Rs 321.00 on 29 March, 2022 and 31 March, 2021, respectively.
Currently, it is trading 9.77 percent below its 52-week high and 78.77 percent above its 52-week low.
Market capitalisation stands at Rs 128,954.01 crore.
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