Buy Hindalco Industries Ltd For Target Rs.525 - ICICI Direct
Reports highest ever quarterly net profit…
About the stock: Hindalco is the world’s largest aluminium company by revenues, and a major player in copper. Its wholly owned subsidiary Novelis is the world’s largest producer of aluminium beverage can stock.
* Over the years, Hindalco has transformed its business model to reduce dependence on the volatile LME price movement and is focusing on a stable portfolio of value added produces
* Novelis has leveraged its extensive recycling footprint and favourable market conditions to increase its recycled content to 61% in FY21
Q1FY22 Results: Hindalco reported a healthy performance in Q1FY22.
* Novelis reported a healthy performance in Q1FY22. For the quarter, it reported sales volume of 973 KT, higher than our estimate of 950 KT. Excluding non-recurring tax litigation benefit, adjusted EBITDA/tonne for Q1FY22 was at US$522/tonne, higher than our estimate of US$510/tonne
* Hindalco’s India business reported revenue from operations of | 13349 crore, higher than our estimate of | 12752 crore. EBITDA of Hindalco’s India business was at | 2513 crore, higher than our estimate of | 1930 crore. Ensuing PAT of Hindalco’s India business was at | 1037 crore higher than our estimate of | 703 crore
What should investors do?
Hindalco’s share price has grown by ~2.5x over the last 12 months (from ~| 178 on August 2020 to ~| 441 levels in August 2021).
* We maintain our BUY rating on the stock
Target Price and Valuation: We value Hindalco at | 525, based on SoTP valuation.
Key triggers for future price performance:
* Novelis’ expansion of recycling, casting, and rolling facilities in Pinda, Brazil is on track, with commissioning expected in Q2FY22. The Guthrie, Kentucky automotive finishing plants in the US and in Changzhou, China are both also ramping up well
* As part of the integration, expansion project in Zhenjiang, China, is expected to begin in the current year with investments of US$375 million over three years. This includes a new cold mill, automotive casting house, recycling capabilities, hot mill upgrade, etc
Alternate Stock Idea: In our metal sector coverage, we also like JSW Steel.
* JSW Steel is the only Indian steel company to be ranked among the top 10 global steel producers by World Steel Dynamics for 10 consecutive years
* BUY with a target price of | 850
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