Detailed Report | Sector: Metals
13 Annual Global Investor Conference
TP: INR310 (+25%)
Mr Satish Pai
Financials Snapshot (INR b)
2017 2018E 2019E
1,001.8 1,075 1,148
124.4 136.6 146.7
129.9 148.2 171.3
De-risked businesses delivering strong free cash flows
Focus on stakeholder value
We hosted Mr Satish Pai, MD and CEO of Hindalco (HNDL), as part of ‘CEO Track’ at our
annual conference. Key takeaways:
HNDL’s business is robust and de-risked. Novelis and copper segments operate on
conversion model, with LME being a pass-through. These two businesses account for
more than 60% of EBITDA, and provide steady cash flows and support balance sheet.
Aluminum smelting is a high margin business; volatility is correlated to metal cycle.
HNDL is present across the entire value chain of aluminum. There are only few
comparable global companies: Norsk Hydro and Hongqiao. Most other players are
either only upstream or only downstream producers.
Superior technology (Pachney) selection for its smelters has helped it achieve stable
operations, while competition is struggling to stabilize GAMI pots (Chinese).
HNDL has access to high quality bauxite, strong logistics, and conveyors for bulk
transportation of minerals from mines. It has secured a diversified mix of coal supply
in proximity to its captive power plants. This has helped it achieve cost leadership in
aluminum production, globally.
Novelis has global leadership in supplying flat-rolled products to the auto industry.
Novelis will continue to look for expansion in the auto space to cater to strong growth
in demand. New investments are expected in the US and China. Pricing pressure in can
business has eased. Electric vehicles are likely to accelerate light-weighting and drive
demand for aluminum.
HNDL continues to focus on accelerated deleveraging and allocation of capital in
downstream, which is less capital intensive. HNDL has already prepaid INR78b debt
and plans to prepay another INR30b during FY18.
There is merit in hedging primary aluminum production, as it helps tide over volatility
in LME and provides net gains because forwards curves have always been in contango.
We remain bullish on the stock due to (a) strong business fundamentals, (b) free cash flow
generation, and (c) the managements’ focus on deleveraging, high IRR projects, and
attractively-valued inorganic opportunities so as to deliver stakeholder’s value. We re-
iterate BUY, with a target price of INR310/share (6.5x FY19E).
Sanjay Jain – Research Analyst
(SanjayJain@MotilalOswal.com); +91 22 6129 1523
Dhruv Muchhal – Research Analyst
(Dhruv.Muchhal@MotilalOswal.com); +91 22 6129 1549
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.