Hindalco share price surge 5% after Its subsidiary Novelis files for IPO in the US

In the early trading session on Wednesday Hindalco Industries a prominent metals company within the Aditya Birla Group recorded a 5% increase in its share price reaching ₹538 per share. The surge follows an announcement from Hindalco's subsidiary, Novelis Inc., on Tuesday.

Novelis Files for IPO with SEC

Novelis Inc., renowned for its production of flat rolled aluminum products revealed that it has submitted a confidential filing for an initial public offering (IPO) with the US Securities and Exchange Commission (SEC). The shares are anticipated to be offered by AV Minerals (Netherlands), the sole shareholder of Novelis, which is wholly owned by Hindalco Industries.

Novelis will not directly receive any proceeds from the sale of shares by its sole shareholder. The completion of the public offering is contingent upon the SEC's review process, market conditions and other factors. Analysts tracking Hindalco suggest that despite the IPO the stock is unlikely to experience a re-rating. The company's stock is currently down 17% from its 52 week high of ₹620.6 recorded on 1 January 2024.

Insights from Analysts and Hindalco's Acquisition History

Analysts highlighted that the current market conditions with the Federal Reserve indicating a pause in interest rate hikes present a favorable environment for going public in the US. However the sale of shares by the promoters rather than the issuance of fresh shares does not warrant a re-rating according to domestic brokerage firm Nuvama Institutional Equities. In 2007 Hindalco acquired Novelis through a $6 billion deal which involved paying the entire amount in cash inclusive of debt.

In Q3 FY24 Novelis reported revenue of $3.9 billion reflecting a 6% YoY decline influenced by lower average aluminum prices. Despite this Novelis saw a 33% YoY improvement in adjusted EBITDA and EBITDA per ton driven by favorable metal recycling benefits and reduced operating costs. However the company ended the quarter with a net debt of $4.6 billion. With ongoing capital expenditures net debt is projected to increase to $5 billion by the end of FY26. On the other hand Hindalco's consolidated net debt stood at ₹34,840 crore at the end of December.

Final Words

The proposed IPO by Novelis Inc., Hindalco's subsidiary marks a development in the company's trajectory. While the IPO announcement has positively impacted Hindalco's stock performance analysts suggest that it may not lead to a re rating. Hindalco continues to navigate market challenges while managing its debt and pursuing growth opportunities within its portfolio.