Hindalco Shares Surge After US Subsidiary Files For IPO With SEC, What Analysts Have To Say?

Novelis Inc, a fully owned subsidiary of Hindalco Industries Ltd, has filed for an initial public offering (IPO) with the US Securities and Exchange Commission (SEC). The announcement led to a surge of up to 5% in Hindalco's shares during Wednesday's early trading session, with the scrip trading 2.16% higher at Rs 522.65 per share on the National Stock Exchange (NSE). This development positioned Hindalco among the top Nifty 50 gainers.

The proposed IPO will see shares offered by Novelis' sole shareholder, AV Minerals (Netherlands), a 100% subsidiary of Hindalco Industries. However, it's noteworthy that Novelis will not receive any proceeds from the sale of these shares. The completion of the public offering is contingent upon the SEC's review process, subject to market and other conditions.

Despite the positive market response, analysts suggest that the Novelis IPO is unlikely to trigger a re-rating for Hindalco Industries' stock. The company's shares have experienced a 17% dip from their 52-week high of Rs 620.6 per share, recorded on January 1, 2024. Contributing factors include delays and a substantial 65% upward revision in the Novelis Bay Minette project's capital expenditure, accompanied by a one-year delay.

Investor concerns have revolved around cost overruns at Novelis Inc's Bay Minette project. In February, Novelis announced a 65% increase in the total capital cost and a one-year delay for the project. The revised cost now stands at $4.1 billion, with commissioning expected by the end of 2026 or the second half of fiscal year 2027.

Despite these concerns, Novelis Inc, based in Atlanta, reported a net debt/EBITDA of 2.7X as of 3QFY24. Kotak estimates suggest that this ratio is likely to remain range-bound over FY2024-28. In the same quarter, the company witnessed a 23% quarter-on-quarter decline in net profit, amounting to $121 million compared to $174 million in the preceding quarter. Revenue also fell by 4% QoQ and 6% YoY to $3.94 billion during the same period.

Novelis reported adjusted EBITDA of $454 million in 3QFY24, in line with analyst estimates. The adjusted EBITDA per tonne was $499, influenced by lower sequential operating leverage due to seasonality and planned shutdowns.

Looking ahead, for 4QFY24, the management anticipates a margin of around $525 per tonne, factoring in normalized volumes and a recovering demand in the key beverage can segment. Investors will be closely monitoring the company's performance in the upcoming quarters, especially given the challenges and delays in the Bay Minette project.

As of midday on the National Stock Exchange (NSE), Hindalco Industries' shares were trading with gains of 1.5%, reaching Rs 519.35 per share. Over the last year, the stock has seen a substantial gain of nearly 18%.

While the Novelis IPO marks a significant step in the expansion plans for Hindalco Industries, the market sentiment remains cautious due to the challenges faced by Novelis, particularly in the Bay Minette project. Investors will be closely watching for updates on the SEC review and developments in Novelis' financial performance.