Buy Hindalco Industries; target of Rs 583: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Hindalco Industries

Hindalco Industries (HNDL) 2QFY24 Consolidated revenue grew 2% QoQ to Rs 541bn (PLe Rs 554bn) on stronger Novelis and copper business performance. Novelis’ Flat Rolled Products (FRP) volumes grew 6% QoQ to 933kt (-5.2% YoY; PLe 940kt) on stronger North America & European volumes. Consolidated EBITDA declined 2% QoQ to Rs 56.1bn (8% lower Vs PLe Rs61bn) despite lower input costs in India and better Novelis performance. We believe HNDL is best placed amongst the metals space as a) Novelis is expected to witness gradual improvement in per ton EBITDA over next few quarters; b) opening up of captive coal mines to benefit India business post FY26; and c) rising focus on high margin value added products such as FRP expansion would drive volume growth from FY26.

Outlook

Despite business headwinds, Novelis continue to perform well and invest significantly in growth. We have raised our FY24/25/26E EBITDA by 6%/1%/4% respectively on robust Novelis performance. At CMP, stock is trading at attractive valuations of 5.2x/4.4x EV of FY25E/FY26E EBITDA. Retain ‘Buy’ rating with revised TP of Rs583 (earlier Rs557) valuing Novlies at 6.5x EV of Sept 2025E EBITDA, as we roll forward.

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Hindalco Industries - 13 - 11 - 2023 - prabhu