Aditya Birla Group’s Hindalco Industries, which is the country’s largest aluminum producer, is considering raising as much as $500 million by issuing fresh shares, according to a Bloomberg news report. The news agency citing unnamed sources said that fresh issuance could either be a rights issue or an institutional placement and a final call would be taken with due consideration to the company’s promoters’ stake.
As of September, the promoters of Hindalco — Aditya Birla Group — have a 36.7% stake in it. At Tuesday’s market capitalisation of R34,564 crore, raising $500 million (or R3,330 crore) would require Hindalco to issue 19.85 crore fresh shares, which would bring down promoters’ stake in the company to slightly less than 34.4%.
The report of the fresh equity issuance comes at a time when Hindalco’s shares have gained almost 200% since hitting a multi year low in February this year. However, if one goes by the valuations investors are giving its global peers, they still seem to have a lot of steam left in them. Alcoa, for instance, is currently trading at over 26 times of its FY17 estimates, Rio Tinto at close to 16 times. At Tuesday’s closing price of R167.8 on the BSE, Hindalco, on the other hand, is trading at just 14.1 times of its FY17 consensus analyst estimate of an earnings per share (EPS) of R11.88. So, despite a 9.6% equity dilution, Hindalco would continue to be one of the cheapest among its global peers.
What has turned investors bullish on Hindalco in recent months is also the fact that global aluminium prices have gained almost 20% since the beginning of the year — 80% of Hindalco’s revenue comes from the aluminium segment —and Novelis’ seem to have turned a corner. In the quarter ended September, Novelis reported a 14% (y-o-y) jump in its earnings before interest, taxes, depreciation and ammortisation (EBITDA) to $270 million. “Our recurring strong EBITDA performance is a result of strategic investments in new capacity, driving positive portfolio mix and efficiency gains through metal input optimisation. We are confident this strategy, coupled with plant productivity and asset efficiency, will continue to drive enhanced operational performance and a stronger product portfolio,” its President and CEO Steve Fisher, said.
Analysts at Jefferies, who have a buy call on the stock with a target price of R200, also believe that when Novelis’ capacity utilisation picks up, Hindalco’s revenue and profit growth would have a potential to rise manifold.