MOSL: HINDALCO INDUSTRIES (Buy)-De-risked businesses delivering strong free cash flows-Focus on stakeholder value

​Hindalco Industries: De-risked businesses delivering strong free cash flows; Focus on stakeholder value

(HNDL IN, Mkt Cap USD7.5b, CMP INR247, TP INR310, 25% Upside, Buy)

We hosted Mr Satish Pai, MD and CEO of Hindalco (HNDL), as part of 'CEO Track' at our annual conference. Key takeaways:

• HNDL's business is robust and de-risked. Novelis and copper segments operate on conversion model, with LME being a pass-through. These two businesses account for more than 60% of EBITDA, and provide steady cash flows and support balance sheet. Aluminum smelting is a high margin business; volatility is correlated to metal cycle.
  
• HNDL is present across the entire value chain of aluminum. There are only few comparable global companies: Norsk Hydro and Hongqiao. Most other players are either only upstream or only downstream producers.
  
• Superior technology (Pachney) selection for its smelters has helped it achieve stable operations, while competition is struggling to stabilize GAMI pots (Chinese).
  
• HNDL has access to high quality bauxite, strong logistics, and conveyors for bulk transportation of minerals from mines. It has secured a diversified mix of coal supply in proximity to its captive power plants. This has helped it achieve cost leadership in aluminum production, globally.
  
• Novelis has global leadership in supplying flat-rolled products to the auto industry. Novelis will continue to look for expansion in the auto space to cater to strong growth in demand. New investments are expected in the US and China. Pricing pressure in can business has eased. Electric vehicles are likely to accelerate light-weighting and drive demand for aluminum.