Hindalco Shares Complete Fundamental Analysis and Future Outlook
Hindalco is the flagship company of the Aditya Birla Group. The company operates in three business segments namely primary aluminium, downstream aluminium and copper. One of their subsidiaries called Novelis in North America is the world’s largest aluminium Flat Rolled Products (FRP) producer and recycler.
- Hindalco’s domestic aluminium plants have a production capacity of 1.3 million tonnes per annum. They are present across the manufacturing value chain from bauxite, mining, alumina refining, smelting to downstream rolling, extrusions and foils.
- Hindalco operates in an asset-heavy sector which is cyclic in nature. To achieve profitability in such industry low-cost structure is required which involves backward integration, high capacity utilization and even recycling capacities.
- Hindalco has been able to achieve all this by setting up power plants and 4 captive mines across multiple locations in India. Utkal Alumina International Ltd, their fully-owned subsidiary, is among the world’s most economical alumina producers in the world this reduces the raw material cost for the company. Novelis, with its 61% recycling capability, is the largest aluminium recycler in the world.
- Along with low cost, the company also focuses on quality. Hindalco aluminium is classified under the high-grade aluminium contract on the London Metal Exchange (LME) and their Copper also has Grade A accreditation.
A combined low-cost structure along with high-grade products acts as a solid moat for the company.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: Hindalco Shares Complete Fundamental Analysis
Some insights for the coming years from management discussion & analysis (MD&A) and con calls are as follows.
- The COVID-19 outbreak will have a major impact on production as well as sales of Aluminium and Copper. Most of the large infrastructure projects have halted across the world along with retail consumption declining especially in the housing sector. The impact is expected to be in double digits for the company in the coming years.
- Hindalco’s Muri alumina refinery restarted its production in December 2019. Even with the sharp decline in alumina price, the company’s management estimates the cost of production there to be cheaper than the cost of imports. This is due to savings in logistics and inventory.
- Utkal alumina’s capacity expansion project of 500 Kilo tonnes was on track before the lockdown and was expected to be commissioned in December 2020. This can move away further until FY 2021–22 based on the demand outlook.
- The Dumri coal block project for power generation should start its production inFY 2021 but is not expected to result in high-cost reduction because it will only be operated during the monsoons when coal availability drops.
The company has shown improvement in efficiency over the years along with sustainable growth, but the global demand outlook is weak in the coming years. The stock price has also corrected significantly but there is not much recovery ahead in the coming years.
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