Buy This Multibagger Large-Cap Metal Stock For Target Price Of Rs 500, Likely To Gain 21% In 12 Months

The report by ICICI Direct on Hindalco Industries Ltd. published on September 2, 2022, has given a buy call to the stock of the company for a target price of Rs 500. Hindalco is the world's largest aluminium company by revenue and a major player in copper.

Over the years, Hindalco has transformed its business model to reduce dependence on volatile LME price movement and is focusing on a stable portfolio of value-added products. Novelis has leveraged its extensive recycling footprint and favourable market conditions to increase its recycled content to 61% in FY21.

Stock Outlook

The stock's current market price is Rs 414.90 per share after closing on Friday. The recorded 52-week low is Rs 308.95 per share, while the recorded 52-week high is Rs 636 per share. According to the Rs 500 per share, the brokerage's estimated target price and the current market price, the stock sees a 21% potential gain in 12 months.

Returns over the past 5 years

The stock has fallen nearly 5.72% in over a week. However, in the past 3 months, it has given a positive return of 1.22%. In the past 1 year, the stock has given a negative return of 9.2%. The stock has given multibagger returns in the past 3 years, around 124.94%. In the past 5 years, the stock has given a positive gain of 70.22%.

Key Highlights

Hindalco's subsidiary Novelis reported a healthy performance in Q1FY23 wherein it reported quarterly adjusted EBITDA/tonne of US$583/tonne (up 33% QoQ). On the back of a healthy operational performance during Q1FY23, Novelis has upward revised its full-year EBITDA/tonne guidance to US$525/tonne from US$500/tonne earlier.

During Q1FY23, coal sourcing for Hindalco's India aluminium business was as follows - ~ 50% of the requirement was met through linkage coal, ~ 31% was met through e-auction coal and balance was met through imports and captive mines. For Q2FY23 also, the coal sourcing mix is likely to be similar to Q1FY23. However, from Q3FY23 linkage coal sourcing is likely to increase to ~60-65%. With higher proportion of linkage coal in overall coal sourcing mix, Hindalco's India aluminium business cost of production (CoP) is likely to decline in Q3FY23, thereby auguring well for the company.

Key triggers for future price performance

According to the brokerage firm:

1. For Novelis, we model EBITDA of US$525/tonne each for both FY23E, FY24E .

2. We model consolidated EBITDA margin of 12.9% for FY23E and 13.4% for FY24E.

Buy for a target price of Rs 500

Hindalco's share price has given a return of 118% in the last two years (from ~Rs 192 in September 2020 to ~Rs 418 in September 2022). "We maintain our BUY rating on the stock. We value Hindalco at Rs 500, based on SoTP valuation," the brokerage has said.

About - Hindalco

Hindalco Industries Limited is the metals flagship company of the Aditya Birla Group. A US$26 billion metals powerhouse, Hindalco is an industry leader in aluminium and copper.

Hindalco's acquisition of Aleris Corporation in April 2020, through its subsidiary Novelis Inc., has cemented the company's position as the world's largest flat-rolled products player and recycler of aluminium.

Hindalco's state-of-art copper facility comprises a world-class copper smelter and a fertiliser plant along with a captive jetty. The copper smelter is among Asia's largest custom smelters at a single location.

In India, the company's aluminium units across the country encompass the gamut of operations from bauxite mining, alumina refining, coal mining, captive power plants and aluminium smelting to downstream rolling, extrusions and foils.

The Birla Copper unit produces copper cathodes and continuous cast copper rods, along with other by-products, including gold, silver, and DAP fertilisers. It is India's largest private producer of gold.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.