In a strategic move that could mark one of the year's most significant share sales, Hindalco Industries Ltd. is reportedly eyeing a staggering $1.2-billion initial public offering for its US-based aluminium products subsidiary, Novelis Inc.
The IPO could target an approximate $18 billion valuation for Novelis, positioning it for a listing on the New York Stock Exchange by September, pending US Securities and Exchange Commission approvals.
What Led To The Decision?
The billionaire Kumar Mangalam Birla-led company had purchased Novelis in a multibillion-dollar deal in 2007.
The potential IPO comes as Hindalco seeks to capitalise on the Atlanta-based company's prominence as the world's largest producer of flat-rolled aluminium products, used across various industries, including automotive and beverage packaging.
With Novelis contributing to over 60% of Hindalco's revenue since fiscal 2015, this strategic move highlights the Indian conglomerate's focus on unlocking value from its overseas operations.
Implications For Hindalco And Novelis
Hindalco's decision to pursue the IPO aligns with its overarching growth and "value unlocking" strategy. The decision can provide a significant capital infusion worth $1.2 billion for future investments and expansion initiatives.
Novelis reported a strong fourth quarter in FY24, marked by increased demand, improved operational efficiencies, and a higher benefit from recycling. South America also witnessed good demand pickup due to seasonal demand in the summer.
Under the proposed sale, shares are expected to be offered by Novelis' sole shareholder, Hindalco Industries. Novelis will not receive any proceeds from the sale of shares.
Novelis Q4 FY24 Key Highlights
Net sales fell 7% YoY to $4.1 billion, driven by lower than average aluminium prices, partially offset by higher total shipments.
Net income, excluding special items, grew 2% YoY to $179 million.
Adjusted Ebitda rose 28% YoY to $514 million.
Flat-rolled product shipments rose 2% YoY to 951 kilo tonne, led by increased demand for beverage packaging sheet.
Adjusted Ebitda per tonne shipped rose 25% YoY to $540.
Management Guidance
Novelis' management expects improved year-on-year volume in FY25e. Over the long-term, flat-rolled products demand is expected to grow at ~4% CAGR. The management has also forecast higher margin of ~$600 per tonne over the medium-term.
A spike in aluminium price by almost 15% during the week is expected to act as a tailwind to scrap spreads. As a result, scrap content is expected to reach 75% by the end of the decade.
While capex for FY24 stood at $1.4 billion, the guidance for FY25e is $1.8–2.1 billion, of which $300 million is mainly for maintenance capex. It is also estimated that ~60–65% of FY25e capex will be utilised for the Bay Minette project.
Analyst View
Kotak Securities maintains an optimistic outlook on Hindalco and has an 'add' rating. This is mainly driven by Novelis' resilient performance and the potential for volume recovery in key markets.
Demand in the aero and auto segments remains robust, according to the brokerage. Destocking in beverage cans appears largely behind, it said.
Kotak expects Novelis’ leverage to remain below 2.5 times over the next three years, despite a pick-up in growth capex. It also expects peak debt levels of Novelis towards the end of CY26.
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