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We attended Hindalco’s Investor day held on 04 April 2023. Below are the key highlights from the meeting:

* The beverage can segment witnessed destocking in 3QFY23, adversely impacting its EBITDA. The destocking was a result of consumption pattern changes post pandemic and supply chain bottlenecks. The segment will take few quarters to return to normalcy. The beverage can industry is expected to witness a CAGR of 3-4% in the long term. HNDL also expects robust demand from the automobile sector, as light weight vehicles and EV gain traction.

* Novelis is expected to achieve its long-term sustainable EBITDA/t guidance of USD 525/t by 4QFY24.

* HNDL is undertaking USD4.4b capex programs across USA, South America, South Korea, and India, enhancing its downstream capacities and product mix. Higher investment in high margin, value-added downstream capacities will further strengthen HNDL’s position as a global leader.

* We believe, HNDL is adding downstream capacities at the right time to capture the robust growth opportunities. Despite near-term headwinds for Novelis, the long-term outlook remains positive. We reiterate our Buy rating for our SOTP-based TP of INR510 (down from INR570).

EBITDA guidance for Novelis stands at USD525/t

* HNDL expects headwinds from customer destocking of beverage cans, high interest rates, and inflation pressures; however, the long-term growth story remains intact.

* For Novelis, we expect EBITDA/t to improve to ~USD460/t in 4QFY23, USD75-125/t lower than its long-term sustainable guidance of USD525/t.

HNDL on track to enhance its downstream capacities

* HNDL has deployed around USD4.4b toward capex in USA, South Korea, South America, and India, which will increase the rolling capacity by 600kt (USA) along with aluminum extrusion capacity by 34kt (India), FRP capacity by 170kt (India), and alumina refining capacity by 350kt (India).

* The 34kt Silvassa facility (extrusion) and 170kt Hirakud facility (FRP) are expected to come on stream by the end of FY24/FY25, respectively.

* Utkal is one of the lowest alumina cost producer in the world and with the expanded capacity of 350kt coming on stream (taking total capacity to 2.5mt), HNDL will gradually reduce the high cost alumina production at Reenukoot refinery.

* Novelis has a long-term rolling capacity target of 5.8mt with recycling contributing 65-70%. As recycling aluminum utilizes almost 85-95% less electricity, it will help Novelis improve the spreads, and thereby, inch closer to its long-term sustainable EBITDA/t target of USD525/t.

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