EUR 120.00 For Business Accounts Only

MOSL: HINDALCO (Buy)-Margin outlook remains strong; We raise HNDL’s FY22/FY23 EBITDA estimate by 3%/7%

HINDALCO: Margin outlook remains strong; We raise HNDL’s FY22/FY23 EBITDA estimate by 3%/7%

(HNDL IN, Mkt Cap USD13.4b, CMP INR443, TP INR520, 17% Upside, Buy)

 

• Novelis, Hindalco’s wholly-owned subsidiary, reported record-high adj EBITDA of USD508m (adj for one-off income of USD47m) on the back of record-high margins of USD522/t (+2% QoQ).
• Novelis should see mix improvement in 2HFY22 and FY23 as the share of auto volumes should increase on account of capacity additions.
• We raise our consolidated FY22E/FY23E EBITDA by 3%/6%, factoring in a higher aluminum price assumption (+3%/7% to USD2,375/USD2,300 per tonne for FY22/FY23). Reiterate Buy.

 In-line EBITDA; margins strong despite adverse product mix

• Revenue / Adj. EBITDA / PAT was up 59%/101%/116% YoY to USD3,855m/USD508m/USD210m, in line with our estimate. Reported adj EBITDA, however, was higher at USD555m, led by one-off income of USD47m on account of the favorable outcome of tax litigation.
• Volumes were flat (-1% QoQ) at 973kt (est 960kt) due to the seasonality impact and lower demand from Automotive in North America; this was offset by higher volumes from other segments.
• EBITDA/t stood at a record high of USD522/t (+2% QoQ). However, this was lower than the estimate of USD530/t, as better aluminum scrap spreads were partly offset by a weaker product mix (lower auto volumes). Novelis reported margin improvement for the fourth successive quarter in 1QFY22.
• FCF post capex of USD101m stood at a negative USD30m in 1Q due to higher working capital needs. As a result, net debt was flat QoQ at USD5.0b. Net debt/EBITDA fell to 2.5x (from 3.8x post the Aleris acquisition in Apr’20).