Buy Hindalco Industries Ltd For Target Rs.725 - ICICI Direct
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Unveils capex plan for next five years…
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
Event: We attended the investor meet of Hindalco wherein the company unveiled its capex plan with investments lined up in both Novelis as well as the India business.
Hindalco has unveiled a capex plan of ~US$8 billion over the next five years. This capex would be incurred in FY23E-27E. Of the total capex, ~US$4.5-4.8 billion would be incurred at Novelis while ~US$3.37 billion would be spent on the India business
What should investors do? Hindalco’s share price has given a return of 75% over the last 12 months (from ~| 327 in March 2021 to ~| 573 levels in March 2022).
We maintain our BUY rating on the stock
Target Price and Valuation: We value Hindalco at | 725, based on SoTP valuation.
Key triggers for future price performance:
During FY23-27, Novelis has chalked out a capex plan of ~US$4.5-4.8 billion, of which ~US$3 billion is expected to be spent in North America, ~US$400 million in Asia, ~ US$300-400 million in Europe and ~ US$800- 900 million in South America
During FY23-27, the India business has chalked out a capex of US$3.37 billion, of which ~US$1.71 billion is expected to be spent on aluminium – upstream, ~US$719 million on aluminium – downstream, ~US$286 million on the copper Business, ~US$194 million on specialty alumina and ~US$459 million on coal mining operations
Alternate Stock Idea: In our metal & mining sector coverage, we also like Tata Steel.
India’s share in Tata Steel’s overall consolidated production capacity has risen from 29% in 2010 to 57% in 2020 and is likely to reach 73% by 2030
BUY with a target price of | 1600
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