MOSL: HINDALCO-Novelis (Buy)-Robust quarter despite some headwinds-FCF generation remains strong
Hindalco (Novelis): Robust quarter despite some headwinds; FCF generation remains strong
(HNDL IN, Mkt Cap USD6.4b, CMP INR205, TP INR338, 65% Upside, Buy)
- A strong quarter: Novelis continues reporting a robust operating performance. Adj. EBITDA increased 6% YoY to USD322m, led by strong demand across product segments, operating efficiencies and favorable recycling spreads, partially offset by some temporary headwinds in autos (China and the UK) and a transport strike. USD2.3b funding has been arranged for the Aleris acquisition.
- FCF generation robust despite growth capex: Novelis generated FCF of USD23m in 3Q (after USD96m capex) and USD127m in 9MFY19 (after USD210m capex and USD360m WC increase). Net debt declined USD14m QoQ, but increased USD131m for 9MFY19, primarily for USD239m payout toward the buyout of a leased facility in Switzerland.
- Outlook remains robust for Novelis: Barring the temporary pull-back in the auto market in the UK and China, the earnings outlook remains robust on the back of tightening in the beverage can market and operating efficiencies. Despite tapering of recycling spreads, management guided for robust EBITDA/t of USD400, which is still 3% better than our FY20 estimate.
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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