Buy Hindalco; target of Rs 600: Motilal Oswal

Motilal Oswal's research report on Hindalco

Hindalco (HNDL) is undertaking ~USD6b (revised upwards from USD4.6b) multi locational-multi product growth capex over the next five years. The initiative aims to augment its capacity across various regions, including the USA (FRP and recycling mill), Utkal (alumina debottlenecking), Aditya (can recycling and battery foil mill), and Silvassa (extrusion). HNDL recently also announced its plan to set up a 25kt battery foil manufacturing facility at Odisha at a total capex of ~INR8b, which will cater to the growing domestic EV requirements. Around USD5.2b of capex is allocated to Novelis and ~68% of the growth capex in India (~USD1b) is allocated to the downstream business with focus on VAP. We believe HNDL is adding downstream capacities at the right time to capture the growth opportunities in the domestic market. HNDL’s increased focus on VAP catering niche segments across aluminum and copper will aid the company to improve its domestic EBITDA margins to over 10% by FY26E. We believe the upcoming 600kt facility at Bay Minette (Alabama, USA) will act as a proxy to the growing demand for beverage can and auto grade aluminum sheet in North America.

Outlook

We reiterate our BUY rating on HNDL with an SOTP-based TP of INR600. The stock is trading at 5.4x FY26E EV/EBITDA and 1.1x FY26E P/B.

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Hindalco - 06032024 - moti