Not Tata Steel Or Vedanta, But This Metal Stock Below Rs 700, May Give 16% Returns Ahead; Motilal, PL Bullish

Brokerages like Motilal Oswal and Prabhudas Lilladher are bullish on top large-cap metal stocks that are trading below Rs 700 on BSE and NSE. It's neither Tata Group-backed steel giant Tata Steel nor billionaire Anil Agarwal-led metals and mining behemoth Vedanta Limited. Instead, Aditya Birla Group-backed the largest copper producer in India, Hindalco.

While Tata Steel and Vedanta are larger than Hindalco in terms of market share, however, the Aditya Birla company has outperformed its two peers YTD.

In 2024 so far, Hindalco's share price gained by 23.51% versus gains of 20.59% in Tata Steel and an upside of 16.48% in Vedanta. As of July 12, Tata Steel takes the lead in being the top metal company with an m-cap of Rs 2,10,595.68 crore, followed by Vedanta with m-cap of Rs 1,67,069.40 crore. While Hindalco's m-cap currently is at Rs 1,55,552.33 crore.

Why BUY Hindalco Share Price?

As per Motilal Oswal, Hindalco is undertaking a capex of ~USD6.9b (USD4.9b for Novelis and USD for HNDL) to expand capacities for several products across multiple locations over the next three to five years. This capex plan will augment its capacity across the USA (FRP and recycling mill), Utkal (alumina debottlenecking), Aditya (can recycling and battery foil mill) and Silvassa (extrusion), among others.

Also, for FY25, Hindalco's management expects to incur a capex of ~INR60b in India for: 1) mines expansion; 2) alumina refinery; 3) FRP-II expansion (battery and copper foil, copper tube, copper e-waste recycling foil); 4) smelter expansion; and 5) aluminium power work, cited the brokerage.

Motilal believes that the upcoming 600kt facility at Bay Minette (Alabama, USA) will act as a proxy for the growing demand for beverage cans and auto-grade aluminum sheets in North America. The company has fully contracted its beverage packing facility at Bay Minette. Novelis has witnessed margin improvement in the last few quarters, which is likely to continue in FY25.

For the Indian business, Motilal believes that Hindalco is adding downstream capacities at the right time to capture growth opportunities in the domestic market. HNDL's increased focus on VAP for niche segments in aluminum and copper will help the company improve its domestic EBITDA margins to +10% by FY26E.

Hence, Motilal added, "HNDL has robust integrated operations and with rising base metal prices, we believe the long-term outlook remains positive. The capacity expansions would position HNDL well to capitalize on growth opportunities."

On the valuation, Motilal added, "Though the ongoing capex at Novelis would position HNDL as the global leader
in beverage cans and automotive FRP segments, any further extension in the capex timeline, along with an increase in capex outlay, will put pressure on the cash flow of the company. Its capex would be a key monitorable for any further cost revisions or delays."

Also, the brokerage said, "Volume growth across geographies is expected to remain stable going forward and HNDL has already secured long-term contracts from marquee customers for its Bay Minette facility, which provides future revenue visibility. Therefore, with favorable pricing and muted costs, Novelis will see its EBITDA/t improve further in the mid-to-long term."

Accordingly, Motilal reiterated BUY on Hindalco with its SOTP-based target price of Rs 800, which hints at nearly 16% potential upside ahead from CMP.

While Prabhudas Lilladher has recommended BUY on Hindalco with target price of Rs 796. Prabhudas expects EBITDA to surge to Rs 315 billion by FY25-end, and at Rs 349 billion by FY26E.

Hindalco is India's largest copper producer, contributing significantly to India's domestic refined copper requirements. Its copper facility in India comprises a world-class copper smelter, downstream facilities, and a captive jetty.