Novelis could be a good bet if valuations top $10 bn
In May 2023, Centrum Broking estimated the implied market cap of US-based aluminium manufacturer, Novelis, at approximately $9.7 billion. It was an “implied" market cap as Novelis is an unlisted entity, wholly owned by AV Minerals of the Netherlands, which in turn is under the full ownership of Kumaramangalam Birla's flagship Hindalco. With Hindalco's recent move to seek SEC approval for an IPO, this implied valuation may soon translate into an actual market cap as AV plans to sell part of its stake.
However, there are no details beyond the fact that the IPO proceeds will benefit AV, with no direct financial impact on Novelis's balance sheet. What Hindalco intends to do with the proceeds is still unknown. Hindalco has a market cap of around $13.8 billion and Novelis contributes 62-65% of Hindalco’s consolidated revenue and around 56% of profits before interest and tax (PBIT).
The valuation of Novelis would therefore be logically some large fraction of Hindalco's market cap. Another valuation exercise, post the announcement was done by Nuvama which assessed the likely implied market cap of Novelis at $9.6 billion–around the same as Centrum albeit nine months down the line. It would not be unreasonable to hope to get a valuation of around $10 billion and anything over that might be considered a good deal for Hindalco.
A TV news channel has, however, claimed that the IPO could value Novelis at $15 billion. On the face of this, it seems absurd. Novelis cannot reasonably be valued higher than Hindalco.
Stranger things though have happened in the past since markets can be irrational. But this is not a tech unicorn. This is a mature commodity business where investors can look at peer businesses and compare decades worth of
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