Hindalco's shares rise by 3.5% after subsidiary Novelis firms up IPO plan

Shares of Hindalco Industries rose 3.5 per cent—most among Nifty50 components—on Wednesday after the Birla group firm announced the pricing for its US subsidiary Novelis’ initial public offering (IPO). Hindalco plans to sell a 7.5 per cent stake in Novelis, which is eyeing valuations of $12.6 billion through a maiden share sale on the New York Stock Exchange (NYSE). Currently, Hindalco, a leading aluminium and copper manufacturer, holds a 100 per cent stake in Novelis, which is in a similar business.

Brokerages have given a thumbs up to the deal. “Considering the buoyancy in US equity markets and the expectation of strong prospects, we expect Novelis to receive the higher end of valuation and maintain our positive stance on Hindalco,” said Prabhudas Lilladher in a note. “We maintain ‘buy’ with a 6.5x enterprise value (EV) multiple to Novelis and 5x to India business, as Novelis’ performance is improving in the near term and India business will improve on the higher LME index,” it added.

CLSA too has a ‘buy’ rating on Hindalco with a price target of Rs 770, implying a 9.2 per cent upside over its last close of Rs 705.

Novelis’ initial public offering (IPO) could generate up to $945 million for Hindalco Industries as proceeds from the offer for sale. At the above mentioned range, Novelis is valued at up to $12.6 billion. Hindalco acquired Novelis in 2007 in a deal that valued it at $6 billion.

In a statement on May 28, Novelis said it has launched “a roadshow for the IPO of 45 million of its common shares held by Novelis’ sole shareholder (Hindalco)”. This will reduce Hindalco’s holding in the company to 92.5 per cent.

In February, Novelis announced plans to pursue a US market listing, with Hindalco Industries as the sole promoter offering the common shares. Currently, Novelis is a wholly-owned subsidiary of Hindalco Industries, and hence will be the sole beneficiary of the up to $945 million proceeds.