Top Conviction Ideas : Buy Hindalco Industries Ltd for Target Rs. 770 - Axis Securities Ltd
* Aluminium upstream: Aluminium smelting capacity will increase from 1,340 KT to 1,520 KT post the under-execution Aditya smelter expansion of 180 ktpa by FY28. Alumina refinery capacity will increase from 3,740 KT to 4,590 KT, led by the Aditya alumina greenfield refinery project of 850 ktpa by FY28. Incremental EBITDA/t from these upstream aluminium projects over the FY24 base is estimated at $200/t. Aluminium downstream: Aluminium Downstream capacity will rise to 600 ktpa from 430 ktpa as Aditya FRP-2 of 170 ktpa ramp up in Q1FY26. This will lead to a $120/t addition to EBITDA/t over the base of FY24.
* Copper business: The company’s 300 ktpa brownfield copper smelter expansion is expected to be commissioned by FY29 in Gujarat, and management envisages that the Tc/Rcs will improve from the current low levels in the next few years as it embarks on the smelter capex. Copper smelting capacity will rise to 721kt from 421kt post this 300kt expansion. In line with the smelting capacity, the CCR expansion of 300 KT is also under execution over and above the existing 540 ktpa rods capacity. This will lead to a $100/t addition to EBITDA/t over the base of FY24.
* Novelis: EBITDA/t will be muted in the short term due to tighter scrap spreads and the impact of tariffs. However, the long-term EBITDA/t towards $600/t is maintained.
* Outlook: Expansion projects will be completed by keeping the Net Debt/EBITDA < 1.5x in India, 3.5x at Novelis and 2.0x at the consolidated level when the Capex peaks in FY28. The company aims to return 8-10% of annual FCF (post maintenance capex and WC) to shareholders.
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