Proposed Novelis IPO is a booster dose for Hindalco

livemint.com:

Hindalco Industries Ltd stock was the top gainer among the Nifty 50 companies on Wednesday, hitting a new 52-week high of ₹713.50 before closing about 4% up on the day. Details of the proposed initial public offering (IPO) of its subsidiary Novelis in the US, which assigns it a market capitalisation of $12.6 billion ( ₹1.04 trillion) at the upper end of the $18-21 per share band, have brought cheer. This is almost two-thirds of Hindalco’s market cap of about ₹1.52 trillion before the announcement.

The valuation ascribed to Novelis is in line with or higher than analysts’ estimates. “At the higher end of the IPO price and with $4.8 billion of debt, Novelis’s enterprise value works out to $17.4 billion, which is 9% higher than [the $16-billion valuation from] our sum-of-the-parts valuation for Hindalco," said a note by Prabhudas Lilladher. At the lower end of the price band, the EV works out to $15.6 billion, it added.

The EV of a company is its market capitalisation plus its net debt. Also read: The man who raised an army to fight a hostile takeover Ambit Capital ascribed Novelis an EV of $13.7 billion in its sum-of-the-parts valuation. “This provides comfort that Novelis expects a valuation provided to more specialised players," said Satyadeep Jain, a research analyst at the firm.

Novelis contributed 62% of Hindalco’s consolidated revenue and 56% of its Ebitda in FY24. Considering the buoyancy in US equity markets, Prabhudas Lilladher expects Novelis to receive a valuation at the higher end of the price band. With inflation in the US largely moving as expected, a rate cut by the US Federal Reserve could further improve sentiment among equity investors.