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Available at near to 10‐year low EV/EBITDA 

Novelis’s earnings resilient amid recessionary fears (~60% of FY23E EBITDA) 

Hindalco  (HNDL IN)’s  share price has  fallen ~50%  from its peak of March  2022 with  investors  having  concern  on  its  huge  capex  plans  coinciding  with  falling  aluminum  prices and possibilities of earnings hit of Novelis amid recessionary fear in developed economies like US and Europe. We believe that the stock has factored in pessimism and market failed to single out the companies like HNDL whose earnings are relatively less  susceptible  to  commodity  prices  and  ~60%  of  EBITDA  comes  from  conversion business which is intact. We believe that fundamentals of aluminum are robust and  there should not be any major fall from current price of USD 2,500/t. However, with  China  increasing  exports,  global  deficit  may  reduce  and  accordingly,  we  cut  our average  LME  aluminium  prices  to  USD  2,600/t  in  FY23E  and  USD2,400/t  in  FY24E,  leading to 3%/6% cut in FY23E/FY24E EBITDA. With earnings cut and lower valuation multiple, we reduce our target price to Rs473 (earlier Rs573), valuing Novelis at 6.0x  FY24E EV/EBITDA and Indian operations at 4.0x FY24E EV/EBITDA. At CMP, the stock  is trading at 4.0x FY24E EV/EBITDA, which is near to a decade low. Reiterate BUY.

India business’s FY23E/FY24E EBITDA cut by 10%/17% to factor in lower prices 

HNDL’s  domestic  aluminium  operation  is  in  the  1st  quartile  of  the  world  cost  curve.  Though 1HFY23 CoP will remain high due to higher coal (receiving 50‐55% of linkage coal  v/s 60‐65% normally) and crude  related products but with improving share of linkage  coal  in H2FY23,  CoP  too will  fall which  will marginally  offset  lower aluminium  prices.  Though  fundamentals  of  the  aluminium  still  are  intact  (global  deficit,  fear  of  ~0.7mt  production cuts in Europe as they have been loss making), the fear of slowdown in global  demand led us to cut our average FY23/FY24 LME price to USD2,600/t/USD2,400/t (Last  10‐year average LME aluminum price was USD 2,063/t).

Risk adjusted return favorable; reiterate BUY with TP of Rs473 
HNDL is trading at 4.0x FY24E EV/EBITDA and 0.7x FY24E P/B with FY24E RoE of 13%. The  balance sheet is under control with net debt/EBITDA of 1.3x in FY23E. HNDL would have  been net debt free by FY26 had it not been investing in growth projects. Moreover, ~70% of the growth capex of ~USD8bn over FY23‐27E (to be funded via internal accurals) does  not depend on commodity prices and can earn more than double of what HNDL can earn by keeping cash in its books. A USD100/t change in aluminium prices should effect ~3%  change in target price. Reiterate BUY.

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