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Healthy performance…

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 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

Q3FY22 Results: Hindalco reported a healthy performance in Q3FY22.  For Q3FY22, Hindalco reported consolidated topline of | 50272

For Q3FY22, Hindalco reported consolidated topline of | 50272 crore, up 44% YoY, 5% QoQ, while consolidated EBITDA was at | 7624 crore, up 38% YoY but down 5% QoQ. Ensuing consolidated PAT for Q3FY22 was at | 3675 crore, up 96% YoY, 8% QoQ

For Q3FY22, Hindalco’s India business reported a topline of | 18485 crore (our estimate of | 16565 crore). EBITDA of Hindalco’s India business was at | 3769 crore (our estimate: | 3253 crore). Ensuing PAT of Hindalco’s India business was at | 1734 crore (our estimate: 1529 crore)

For Q3FY22, Hindalco’s wholly owned overseas subsidiary Novelis reported shipments of 930 KT, marginally lower than our estimate of 950 KT. For Q3FY22, Novelis reported adjusted EBITDA/tonne of US$544/tonne, broadly in line with our estimate of US$550/tonne

What should investors do? Hindalco’s share price has given a return of 83% over the last 12 months (from ~| 296 in February 2021 to ~| 543 in February 2022)

We maintain our BUY rating on the stock

Target Price and Valuation: We value Hindalco at | 650, based on SoTP valuation

Key triggers for future price performance:

Focus on downstream capacity expansion at both Novelis and India, augurs well

Over FY21-23E, we expect Hindalco’s consolidated topline to grow at a CAGR of 22.4% while consolidated EBITDA and consolidated PAT are expected to register a CAGR of 27.0% and 53.8%, respectively

Alternate Stock Idea: In our metals & mining sector coverage, we also like NMDC.

During FY21, NMDC’s iron ore production volume was at ~34 million tonnes (MT) while sales volume for FY21 was at ~33 MT

BUY with a target price of | 190

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