- 29 May 2024
- ICICIdirect Research
Hindalco Ltd’s subsidiary Novelis targets up to 12.6 Billion dollars Equity Valuation in US IPO
HINDALCO - 701 Change: 0.85 (0.12 %)News: Hindalco has informed exchanges that it plans to sell 45 million shares of its wholly owned subsidiary i.e. Novelis via IPO route in US at a price band of US$ 18-21, thereby raising ~ US$945 million. This represents 7.5% stake sale of Novelis by Hindalco with rest (92.5%) being retained at its end. The proposed IPO also includes a greenshoe option of 6.75 million shares at the same price, consequent to which Hindalco’s stake in Novelis post transaction is expected at 91.4%. Novelis will not receive any proceeds from the sale of common shares by its sole shareholder, Hindalco.
Views: At the indicated price band, Novelis is valued between US$10.8 and US$12.6 billion at the Equity level, which coupled with expected net debt of ~US$ 4.5-5 billion, fetches it an Enterprise value of ~US$ 15.3-17.6 billion, ahead of our implied valuation of US$ 16.5 billion (7.5x EV/EBITDA to US$ 2.2 billion EBITDA in FY26) used in our target price calculation of ₹ 835. This is a value unlocking event for Hindalco and could potentially add another ~₹ 40 to our target price calculation, marginally short of earlier expectations. The company has still not disclosed the purpose or intended use of the expected proceeds. We will closely monitor developments in this space. We maintain a positive view on the company due to the strong demand for Aluminium metal driven by its increasing application in the automobile and renewable spaces, strategic capacity expansion at Novelis and Hindalco and controlled leverage on B/S Debt to Equity at ~0.5x.
Impact: Positive