Brokerages bullish on this multibagger stock; see more upside

Shares of Hindalco Industries Limited have delivered a multi-bagger return to its long-term investors. In the past one year, the share price jumped from Rs 235.95 to Rs 469.60 mark -- logging nearly 100 per cent return in this period.
 
The stock has been gaining for the last 3 trading sessions and has risen 7 per cent during the same period. With a market capitalisation of more than Rs 26,000 crore, the share stands higher than 5 day, 20 day, 50 day, 100 day and 200 day moving averages.
 
Recently, the metals flagship company of the Aditya Birla Group signed a definitive agreement to acquire Hydro’s aluminium extrusions business in India for an enterprise value of Rs 247 crore.
 
"This acquisition from Hydro, the Norway-headquartered aluminium and energy company, brings into the Hindalco fold, an integrated facility located in Kuppam, Andhra Pradesh, an experienced team of employees and the ability to serve a robust portfolio of reputed customers," Hindalco said.
 
Of late, the brokerages have maintained bullish stance on the stock. Brokerage firm ICICI Securities said that Hindalco’s decision to acquire Hydro's aluminium extrusions business in India (Kuppam in AP) for Rs 2.5 billion falls within the envelope of Hindalco’s ‘Doubling the downstream’ strategy wherein the company has entailed a capex of $1.1 billion.
 
It noted that the plant will also serve as an archetype for Hindalco's upcoming extrusions plant in Silvassa (Rs 7.3 billion capex for 34ktpa greenfield plant). Once commissioned, the Kuppam and Silvassa units are expected to boost Hindalco's total aluminium extrusions capacity from 60ktpa to 109ktpa. The transaction is expected to close by Q1CY22.
 
"We maintain BUY with a target price of Rs550/share at 1.37x FY23E book value. Novelis is improving consolidated RoE. Earnings though are benefitting from cyclicality, from the elevated scrap to LME spread in particular," it said in its research report.
 
Prabhudas Lilladher noted that the domestic aluminium earnings would be soft in Q3 due to a sharp increase in costs and flat LME. However, pressure on costs would start easing in Q4FY22 with an increase in the share of linkage coal and a fall in carbon costs. Novelis would continue to post elevated margins on the back of expansion in scrap spreads, increase in the share of Auto volumes (with ease in chip shortage) and continued growth in beverage cans and specialty products.
 
"Additionally, Novelis’ free cash flow (FCF) would improve considerably with fall in LME as for every US$100/t fall in metal price results in a reduction in working capital by US$60mn. Driven by a strong earnings outlook in both India and Novelis, we reiterate BUY with a target price of Rs 570 based on EV/EBITDA of 6.7x FY," the brokerage firm added.