Why Hindalco Share Price is Falling

Imagine you're the star player on your local basketball team. You're praised for your skills and dedication.

But then, during a crucial championship game, your teammate commits a series of fouls, resulting in free throws for the opposing team and ultimately leading to a loss. Despite your stellar performance, the team suffers due to someone else's actions.

Hindalco's recent share price decline is similar. The company itself is performing well, but news related to its subsidiary, Novelis, caused a 7% drop on Tuesday.

Let's explore how this external factor is affecting Hindalco's investors, even though the company itself isn't directly responsible.

Subsidiary's IPO Delayed

Hindalco share price tumbled after its US subsidiary, Novelis, decided to postpone its highly anticipated initial public offering (IPO) citing unfavorable market conditions. Aditya Birla Group acquired Novelis back in 2007.

While Novelis hasn't completely abandoned the IPO idea, they are taking a strategic pause to re-evaluate the timing and ensure a more receptive market environment. The planned offering aimed to raise a significant sum, with estimates ranging from US$ 810 million (m) to US$ 945 m.

Novelis shares were priced between US$ 18 and US$ 21 each, potentially generating even more capital through a green shoe option available to US primary market investors. This option could have pushed the total proceeds to a staggering US$ 1.08 billion (bn).

Adding another layer to the story, Hindalco's subsidiary, AV Minerals (Netherlands) NV, was set to offload 45 m of its Novelis shares during the IPO. A successful listing would have resulted in Hindalco retaining ownership of 555 m Novelis shares, translating to a dominant 92.5% stake in its US subsidiary.

This postponed IPO was poised to be a landmark event, potentially becoming the largest ever for an Indian company in the US market. Novelis, a global leader in aluminum recycling and a trusted supplier to giants like Coca-Cola, Ford, and Jaguar Land Rover, was targeting a valuation of up to US$ 12.6 bn.

What Next?

Hindalco's financial performance in FY24 was muted. Its consolidated net profit stood at Rs 101.6 bn, up 1% from last year's profit. On the other hand, revenue slipped to Rs 2,159.6 bn in FY24.

Here's a snapshot of the company's latest financial performance.

Hindalco's Latest Financial Performance

Despite muted performance in the short term, Hindalco's future prospects appear promising.

Favourable geopolitical conditions are expected to boost its international business. The company anticipates accelerated growth in the US, a gradual uptick in the Eurozone, and moderate economic expansion in China for 2024.

Additionally, global disinflation is projected to continue, moderating from 6.8% in 2023 to 5.9% in 2024 and further down to 4.5% by 2025. Improved momentum in the manufacturing sector, reduced supplier delivery times, and a rebound in global trade all bode well for its growth outlook.

The company's domestic business is also expected to pick up, driven by a broad-based recovery in the private capital expenditure cycle and strengthening private consumption.

Inflation is forecast to moderate to 4.5% in FY25 from 5.4% in FY24, with the RBI MPC holding the policy repo rate steady at 6.5% as inflation concerns continue to dominate rate decisions.

Beyond external factors, Hindalco is actively strengthening its internal capabilities. The company is on track to achieve net water positivity by 2050 through various desalination and other projects it has initiated.

In terms of green energy progress, the company has already achieved 57% of its target of 300 megawatts by 2025, having commissioned 173 megawatts of solar and wind renewables to date.

An additional 29 megawatts of solar and wind projects are under construction and expected to be completed by the second quarter of the current financial year. A 100-megawatt hybrid power project is also on schedule for commissioning by the third quarter.

However, the company also faces some risks. Delayed interest rate cuts due to persistent inflation concerns and worsening geopolitical conditions could materialise. Additionally, ongoing geopolitical tensions pose a downside risk to the expected disinflation process.

How Hindalco Share Price has Performed Recently

In the past five days, Hindalco share price tumbled 1.5%. In the last month, it is up 8.3%.

In 2024, so far it is up 13.3% and it is up 66.5% in the past year.

The stock touched its 52-week high of Rs 714.9 on 3 June 2024 and a 52-week low of Rs 407.3 on 23 June 2023.

About Hindalco

Hindalco Industries is an Indian aluminium and copper manufacturing company. The company is a subsidiary of the Aditya Birla Group.

Hindalco is the largest aluminium rolling and recycling corporation in the world, as well as a major copper player. It is also one of Asia's top primary aluminium producers.

Building and construction, auto-motives, packaging, electrical, consumer durables, refractories, and ceramics are some of the industries it serves.

Along with its global subsidiary Novelis Inc., Hindalco has a presence in 12 countries. From bauxite mining to alumina refinement, aluminium smelting, rolling, and extrusions, the company engages in a wide range of operations.

You can also compare Hindalco with its peers.

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