Hindalco Industries - Integrating For Greener Pastures; Systematix Initiates Coverage With A Buy

Systematix Research Report

Hindalco Industries Ltd. is an integrated producer of aluminium and copper, and operates through four businesses (upstream and downstream aluminium, copper and Novelis). Its U.S.-based wholly-owned subsidiary, Novelis Inc. (Novelis) is the largest manufacturer of aluminium flat-rolled products globally.

It is calculatedly steering towards a green future to reduce carbon footprint by 30% by FY26. With an annual rolling capacity of 4.1 million tonnes per annum, Novelis improved its recycled content from ~57% in FY18 to more than 61% in FY23.

As scaling circularity requires a company’s product portfolio to be fully integrated with raw materials, Hindaloc Industries has been focusing on backward integrating and expanding value-added products across segments.

In 2022, it embarked on a growth capex expansion plan at an outlay of ~$6.1 billion (over five years) across its business segments covering domestic and international operations.

Backward integration, raw material security, and technologically-advanced manufacturing facilities render Hindalco as one of the lowest-cost aluminium producers globally.

Hindalco is focused on deleveraging its balance sheet as also meeting its future growth plans, through robust operational performance and cash flow generation.

We initiate coverage on Hindalco with a 'Buy' rating and a target price of Rs 693/share (enterprise value/Ebitda SOTP), implying 33% upside from the current market price.

Capital cost overruns for capacity expansion projects and commodity price volatility are key risks to its profitability and stable cash flow generation.

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