
The proposed Novelis IPO is unlikely to bring re-rating for Hindalco Industries Ltd stock, which is down about 15 per cent from its recent high following delays and an 65 per cent upward revision in Novelis Bay Minette project capex one-year delay. The issuance of fresh shares would have been beneficial but this act of sale of shares by the promoters does not provide any case for a re-rating, Nuvama Institutional Equities said while maintaining ‘Hold’ on the stock with a target price of Rs 508.
Novelis submitted a draft registration with the Securities and Exchange Commission (SEC) relating to the proposed sale of promoters’ shares. The shares are expected to be offered by Novelis's sole shareholder, AV Minerals (Netherlands) NV, a 100% subsidiary of Hindalco Industries. Novelis would not receive any proceeds from the sale of shares by its sole shareholder. It expects to complete the public offering after the SEC completes its review process, subject to market and other conditions.
Nuvama said the money received may reside in Hindalco’s 100 per cent overseas subsidiary, AV Minerals (Netherlands) NV. It is still unclear how many shares the promoter shall sell along with the timeline too, but Nuvama believes it would take at least six months if everything goes smoothly.
"The usage of money, which would be received post share sale, is unclear. It can either be used to grow inorganically or pay one-time dividend/capital repatriation to Hindalco, the parent company (depends on tax implications). However, Hindalco, the Indian entity, does not require cash as it already has net cash of Rs 3,400 crore at Q3FY24-end and future capex can be met via internal accruals," Nuvama said.
At the end of December quarter, Novelis had a net debt of $4.6 billion. With its ongoing capex, net debt is likely to increase to $5 billion by FY26-end. Hindalco’s consolidated net debt stood at Rs 34,840 crore at the end of December quarter.
"Our fair value of Hindalco is Rs 508 per share. In our valuation, we assign 6.5 times EV/Ebitda to value Novelis on FY26 earnings while its derived market cap is $9.6 billion (Rs 361 per share of Hindalco). Novelis’s closest competitor, Constellium (40 per cent of Novelis’s Ebitda; listed on the New York exchange) is trading at 5.3 times 2025 (as per Bloomberg consensus). As we already provide a higher valuation multiple to Novelis, this event may not provide any case for a re-rating. In fact, the listing of shares may attract Holdco discount too in future," Nuvama said.
The event can be sentimentally positive only, the domestic brokerae said.
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