MOSL: HINDALCO (Buy)-Novelis beats est.-strong demand across products; Strong business at attractive valuations
Hindalco: Novelis beats est.; strong demand across products; Strong business at attractive valuations; Re-iterate BUY
(HNDL IN,Mkt Cap USD7.2b, CMP INR219, TP INR327, 49% Upside, Buy)
- Strong 1QFY18: Novelis continues improving its quarterly operating performance. Adjusted EBITDA increased 15% YoY to USD322m, led by strong demand across product segments, operating efficiencies, continued switching from low-margin to high-margin products and abnormally favorable recycling spreads of USD16m (USD20/t), partially offset by lower-priced beverage can contracts and higher SG&A.
- FCF improved YoY: FCF improved USD73m YoY to negative USD4m due to higher EBITDA, lower interest and a lower increase in working capital, partially offset by higher capex and taxes paid. Net debt rose marginally by USD23m QoQ to USD3.6b, while net debt to EBITDA stood at <3x.
- Asia and Brazil reported a significant QoQ improvement in EBITDA per ton, driven by overall strong market demand and recycling spreads.
- Novelis' FY19 EBITDA has upside risk: Novelis continues leveraging its first-mover advantage in autos, while demand for other segments too has improved. We are raising EBITDA for FY19 by USD21m due to the 1Q beat. Strong recycling spreads pose an upside risk to our estimate of USD1.29b.
Hindalco Industries is engaged in the production and sale of aluminum and copper in India and internationally. Co.'s aluminum products include rolled products, extrusions, foils, primary aluminum ingots, billets, wire rods, and aluminum slabs; and aluminum chemicals, such as standard alumina, standard hydrate and specialty aluminas and hydrates for use in refractories, ceramics, fire retardant plastics, alum, and zeolite applications. Co. also offers aluminum foil and packaging solutions to pharmaceuticals, healthcare, dairy, confectionery, processed foods, personal products, and tobacco industries, as well as to the heat, ventilation, and air conditioning industries.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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