We recently attended Hindalco’s (HNDL) Investor Day 2023 in Mumbai last week and gained new insights into the company’s strategy, expansion plans, and sustainability initiatives. Key takeaways include: Novelis is maintaining a positive long-term outlook despite short-term uncertainties; the company’s India operations are focused on downstream expansion; management continues to allocate capital prudently, with no major inorganic growth initiatives currently in the works; and Hindalco has a comprehensive focus on sustainability efforts. Going ahead, we believe, while long-term prospects for HNDL are bright, the transitory headwinds might be a deterrent to stock price performance. Besides, in the near term, we see investors tracking Novelis’ Ebitda trajectory to US$525/te by Q4FY24. We trim our FY23e/FY24e Ebitda by 4%/5% and introduce FY25e financials. Our revised TP works out to Rs 450 on an unchanged multiple of 5.7x EV/Ebitda on roll-over to FY25E.
Novelis remains in focus HNDL management reiterated their Ebitda/te guidance of US$525/te by Q4FY24 when they expect the current headwinds to subside. However, the company anticipates challenges in the near term due to sustained energy inflation in Europe, though they believe that the worst is now behind them; North American demand for beverage packaging has been impacted by destocking while that in building & construction segment stands to be affected by continued high interest rates; and scrap supply constraints in South America, though there has lately been an improvement. As a result, we expect Novelis’ Ebitda/te to be in the range of US$440-450 through to FY25e. In the longer term, we believe, completion of Bay Minette project by FY26 will potentially be margin-accretive as contracts are being negotiated at better margins than the existing ones.
Downstream focus at India operations. In India operations, HNDL is focusing on expanding its downstream capacity in order to capture growth in both copper and aluminum. Besides, it is enhancing its presence in speciality alumina. We expect HNDL’s India capex to increase in FY24E.
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Outlook: Despite short-term challenges at Novelis owing to continued destocking in the beverage can market for next two quarters, we remain positive on downstream capex at India operations and prudent capital allocation policy. As a result of cost headwinds, we trim our FY23E/FY24e Ebitda by 4%/5% and introduce FY25E financials.