ICICI Securities has maintained a buy rating for Hindalco Industries share in its latest research report dated December 21, 2021.
The target price set by the brokerage house after their thorough analysis is ₹ 550.
Hindalco Industries is a premium metal company of Aditya Birla Group.
It is an industry leader company in aluminium and copper with a whopping $ 18 billion market cap.
The company is a major global player for aluminium as an integrated producer and has a footprint in 9 countries other than India.
Table of Contents
SUMMARY OF ICICI SECURITIES RESEARCH REPORT ON HINDALCO INDUSTRIES:
Hindalco Industries took a decision of acquiring Hydro’s aluminium extrusions business for ₹ 2.5 bn for implementing it’s ‘Doubling the downstream’ strategy. This led to the company’s involvement in a capex of US $ 1.1 bn.
The establishment and smooth functioning of Kuppam and Silvassa units will boost the company’s total aluminium extrusion capacity from 60 ktpa to 109 ktpa.
Dealer network, differentiated by quick turnaround has helped in increasing the sales of extrusion products.
ICICI securities maintain a BUY call on Hindalco Industries share and stated in their research report that this downstream shift excites them.
According to ICICI securities following is the capacity map of global aluminium extrusions.
Global supply of extrusions: 30 mtpa (million tonnes per annum).
While China single handedly provides 19 mtpa of the extrusions, it has become the largest exporter of the world as per Bloomberg.
As per the estimates of ICICI securities, India will see a demand of 400 ktpa (kilo tonnes per annum).
India is less than 2% of global demand, the demand is focused for building and construction is 60%+ and for Industry is 25%+.
By Calendar year 2030, Indian market can potentially grow to 0.8-1 mtpa.
Expected increase in fabrication of formwork and ductwork has developed a great demand in India market.
Increment in solar panel manufacturing is acting as a catalyst for an increase in the demand of aluminium extrusion.
Jindal Aluminium has emerged as the largest Aluminium extrusion player in India.
Largest dealer network in India (100+ dealers in 30 cities) is been owned by Jindal.
Dealer comfort is superb due to timely product availability and which is completed in a span of 1 week.
By increasing the cash discount to the distributors, Jindal has emerged as a decent brand.
As per ICICI Securities, Hindalco Industries share can choose to invest in foundry. Through increased usage of scrap the company can drive metal cost savings.
According to the brokerage house, investment in foundry is not a bad idea as 60% of Indian demand is being generated by building and construction sector which will be showcased in medium term itself.
QUARTERLY RESULTS
Figures in Cr
| Quarterly Results | Sep-19 | Dec-19 | Mar-20 | Jun-20 | Sep-20 | Dec-20 | Mar-21 | Jun-21 | Sep-21 |
| Sales | 29,657 | 29,197 | 29,318 | 25,283 | 31,237 | 34,958 | 40,507 | 41,358 | 47,665 |
| Expenses | 26,026 | 25,833 | 25,478 | 23,490 | 27,885 | 29,904 | 34,869 | 35,652 | 40,120 |
| Operating Profit | 3,631 | 3,364 | 3,840 | 1,793 | 3,352 | 5,054 | 5,638 | 5,706 | 7,545 |
| OPM % | 12% | 12% | 13% | 7% | 11% | 14% | 14% | 14% | 16% |
| Other Income | 32 | 293 | 306 | 3 | 362 | 147 | 223 | 845 | 418 |
| Interest | 922 | 889 | 1,429 | 992 | 982 | 861 | 903 | 820 | 1,291 |
| Depreciation | 1,249 | 1,287 | 1,322 | 1,544 | 1,708 | 1,655 | 1,721 | 1,645 | 1,640 |
| Profit before tax | 1,492 | 1,481 | 1,395 | -740 | 1,024 | 2,685 | 3,237 | 4,086 | 5,032 |
| Tax % | 35% | 28% | 52% | 4% | 62% | 30% | 40% | 32% | 32% |
| Net Profit | 974 | 1,062 | 669 | -709 | 387 | 1,877 | 1,928 | 2,787 | 3,417 |
| EPS in Rs | 4.34 | 4.73 | 2.98 | -3.16 | 1.72 | 8.36 | 8.58 | 12.4 | 15.21 |
BALANCE SHEET
Figures in Cr
| Balance Sheet | Mar-15 | Mar-16 | Mar-17 | Mar-18 | Mar-19 | Mar-20 | Mar-21 | Sep-21 |
| Share Capital | 207 | 205 | 223 | 223 | 222 | 222 | 222 | 222 |
| Reserves | 38,122 | 40,402 | 45,832 | 54,625 | 57,275 | 58,091 | 66,307 | 71,036 |
| Borrowings | 68,468 | 67,552 | 63,817 | 52,074 | 52,415 | 68,399 | 67,206 | 68,149 |
| Other Liabilities | 34,950 | 32,986 | 36,272 | 40,092 | 42,060 | 41,906 | 55,077 | 64,321 |
| Total Liabilities | 1,41,746 | 1,41,146 | 1,46,144 | 1,47,014 | 1,51,972 | 1,68,618 | 1,88,812 | 2,03,728 |
| Fixed Assets | 71,959 | 85,648 | 84,687 | 85,088 | 85,860 | 89,195 | 1,00,269 | 1,03,605 |
| CWIP | 14,111 | 4,214 | 1,814 | 2,063 | 4,097 | 7,721 | 10,202 | 7,037 |
| Investments | 12,346 | 12,463 | 15,157 | 10,781 | 9,012 | 9,411 | 17,133 | 20,277 |
| Other Assets | 43,330 | 38,821 | 44,486 | 49,081 | 53,003 | 62,291 | 61,208 | 72,809 |
| Total Assets | 1,41,746 | 1,41,146 | 1,46,144 | 1,47,014 | 1,51,972 | 1,68,618 | 1,88,812 | 2,03,728 |
SHARE HOLDING
| Share Holding | Sep-19 | Dec-19 | Mar-20 | Jun-20 | Sep-20 | Dec-20 | Mar-21 | Jun-21 | Sep-21 |
| Promoters | 34.66 | 34.65 | 34.65 | 34.65 | 34.65 | 34.65 | 34.64 | 34.64 | 34.64 |
| FIIs | 21.19 | 20.74 | 18.68 | 18.52 | 19.59 | 22.79 | 25 | 24.95 | 25.47 |
| DIIs | 25.31 | 25.19 | 26.27 | 26.87 | 25.1 | 22.07 | 20.81 | 20.58 | 20.61 |
| Government | 0.12 | 0.12 | 0.41 | 0.41 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 |
| Public | 18.48 | 19.05 | 19.72 | 19.29 | 20.38 | 20.22 | 19.28 | 19.55 | 18.97 |
| Others | 0.25 | 0.25 | 0.26 | 0.26 | 0.26 | 0.26 | 0.26 | 0.26 | 0.29 |
VALUATION METHODOLOGY BY ICICI SECURITIES:
ICICI Securities maintain a BUY signal with a target price of ₹ 550/share.
Cyclicality is benefitting the earnings, particularly the elevated scrap and LME spread.
KEY RISKS HIGHLIGHTED BY ICICI SECURITIES:
UPSIDE RISKS:
Aluminium prices.
Faster than expected deleveraging of the consolidated entity.
DOWNSIDE RISKS:
Lower aluminium prices.
Profitability reduction in Aleris and Novelis.
Reduction in scrap.
DISCLAIMER
This stock has been analyzed and recommended in the brokerage report of ICICI Securities. Equity investing can cause a risk of financial losses. Due caution should be exercised by the Investors while dealing in equities. LearnTwoTrade as well as the author are not liable for any losses caused as a result of decisions based on the article.