Continuing with the mining sector stock in our Electric Vehicle Value Chain Series, we will take Hindalco Industries Limited as our third stock. So Let's find out what potential Hindalco Industries holds for the upcoming EVs market in the future.
In the Electric Vehicle Segment, two commodities will play a crucial role i.e., Copper and Aluminium.
Looking minutely over the market share of these commodities, Hindalco has a good market share in the Copper and Aluminium Market in India.
Hindalco Industries is the subsidiary of Aditya Birla Group.
The company is a leader in the Aluminium and Copper Industry.
Hindalco has an Alumina Capacity of 3 Million Tonnes Per Annum (MTPA).
The company has an Aluminium Smelting Capacity of 1.3 MTPA.
The company is having the finest facility and is a leader in this industry.
Also, Hindalco is the largest Aluminium Rolling Company in the world and one of the largest Copper Smelting companies across the globe.
Hindalco also has a position in the largest producers list of Primary Aluminium in Asia.
The company is having a low-cost production capacity of Aluminium because of its Captive Coal Mines.
Having Captive Coal Mines is very advantageous for the company as when price pressure is built up, there is not much effect on margins.
As per the Bloomberg Outlook Report, EV Car as a % of Car Sales will be 10% in 2025 and 58% in 2048.
This report provides the vision of the growing EVs market in India and also presents the insight of usage of commodities like Aluminium and Copper in the future in this market.
From the safety and light-weight viewpoint, Aluminium is the right choice for this purpose and which provides organic growth for this commodity and this company as well.
Talking about another growth option available in this industry is the Replacement Policy. As mentioned in the Vehicle Scrappage Policy of the Government, where Commercial Vehicles will be allowed to get scrapped which are aged more than 15 years and Passenger Vehicles will be allowed for scrapping after 20 years. This will create a Replacement Demand in this industry and at least 2 cycles of this demand can be witnessed in 30 years.
Also, the Life Cycle of the vehicles in the developed market of the economy doesn't need to be around 15-20 years. Furthermore, the vehicle life cycle can be less than the concerned period and therefore it can work as an additional advantage in the EV industry, where the industry can witness around 3-4 demand cycles.
Adding to this topic, this replacement demand will indirectly benefit the raw materials of the EV industry such as Copper and Aluminium.
As discussed earlier, Electric Vehicles Technologies and its supporting infrastructure employ 4 times more copper than the usage of copper in IC-engine vehicles.
Aluminium has also its usage over the shell of the battery. If Aluminium Shell is used for the battery purpose of EVs, it can result in a 50% lighter battery weight compared to a steel shell.
Moreover, it can help EV in improving their range by 10% which will be quite beneficial.
Aluminium and Copper Industries are cyclical industries and therefore the Hindalco Stock is directly affected by the volatility in the cyclicality of the commodity.
Commodity companies have to face fluctuation in their stock price due to the cyclical pattern of the industry.
The company can be greatly benefited by the changes in the Automobile Sector from IC Engine vehicles to Electric Vehicles, as the prime commodities that will be used in EVs are Copper and Aluminium and Hindalco is the leading market player in this industry. Looking at the visibility of growth in demand for Aluminium in the EVs market, Hindalco can play a significant role in fulfilling those demands.
One should have electric vehicle stocks in their wishlist but it can be a risky bet since it’s a commodity stock that is largely affected by cyclical patterns in the commodity. One should invest in this stock only by understanding the business and cyclical patterns of the industry and keeping in mind the prospects.
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