MOSL: HINDALCO (Buy)-Strong performance in North America drives beat-Valuations attractive
HINDALCO: Strong performance in North America drives beat; Valuations attractive; Re-iterate BUY
(HNDL IN, Mkt Cap USD5.7b, CMP INR181, TP INR244, 35% Upside, Buy)
Novelis' adj. EBITDA increased 11% YoY to USD372m (v/s est. USD324m), led by robust performance in North America. Volumes rose 4% YoY to 830kt (v/s est. 813kt). EBITDA/t improved 7% YoY to USD448/t (v/s est. USD398/t). Adj. PAT increased 20% YoY to USD159m.
** Adj. EBITDA for the company's North America (NA) business grew 34% YoY. This was on account of favorable conditions for the specialties market in the US, post the anti-dumping duties on China. Demand for its products within the auto market also remained strong. With favorable market conditions in the US, Novelis' shipped products from other regions (Europe, Asia and South America) to NA as well.
** With capacity utilization at >90%, the company seeks to optimize its portfolio. Novelis will remain selective in its exposure within specialty and use some of this capacity to cater to the 'can' market.
** Demand outlook favorable: Demand for aluminum in auto remains favorable in the US. Company believes that the Chinese auto market has bottomed out and remains positive given the huge potential in EVs. Beverage cans outlook is also optimistic with increasing preference for lightweight and sustainable aluminum packaging.
** Valuations attractive; re-iterate BUY: We remain conservative on profitability and build in average EBITDA/t of USD418/t for FY20. With spread between LME and scrap reducing, margins should eventually normalize. Management continues to guide for sustainable EBITDA/t of above USD400/t. Hindalco continues to benefit from Novelis' strong business and fully-integrated smelting operation in India. The stock trades at attractive valuations of 5.3x EV/EBITDA and 7.7x P/E on FY21E. We value it at INR244/share based on SOTP. Re-iterate BUY.
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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