Hindalco Industries Ltd. share price target

Novelis' adj. EBITDA in Q1FY21 fell 29% QoQ/32% YoY at US$253mn (PLe:US$247mn) due to 38% QoQ/41% YoY fall in Novelis' legacy operation's EBITDA at US$219mn, offset by US$34mn of EBITDA contributed by Aleris....

LME Aluminum price recovered ~16% from recent lows of USD1,422/t to USD1,655/t (currently), led by higher demand in China. In 2QCY20, primary aluminum consumption in China grew by 5% YoY, whereas demand ex-China declined 28% YoY, resulting in a 9% YoY drop. In 2QCY20, global primary aluminum demand declined 9% YoY to 15.5mt. According to Norsk Hydro, the Aluminum market was in surplus of ~2.5mt (supply v/s consumption) in 2QCY20 as primary aluminum production increased 1.2% YoY in 1HCY20 amid declining demand. In 2QCY20, global aluminum stocks rose by 0.7mt QoQ to 14.2mt, led by a 1.6mt rise in ex-China inventory to 9.3mt. Rolled Aluminum market demand is guided to improve substantially in 3QCY20; it is likely to decline by just 7% YoY in North America and 11% YoY in Europe v/s decline of 29% and 26%, respectively, in 2QCY20. Extrusion Aluminum demand would decline 14%/22% in North America/Europe in 3QCY20 (v/s decline of 30%/32% in 2QCY20).

Novelis, a wholly-owned subsidiary of Hindalco, reported a healthy Q4FY20 performance with adjusted EBITDA/tonne at US$436/tonne (higher than our estimate of US$400/tonne). For Q4FY20, net sales were at US$2.7 billion, down 12% YoY on account of lower average LME aluminium prices and local market premiums. Flat rolled products shipments for Q4FY20 were at 811 KT (down 7% YoY but higher than our estimate of 775 KT). EBITDA increased 7% YoY to US$383 million. The current quarter includes a cumulative positive impact of US$29 million from a contractual customer...

Novelis: Novelis delivered yet another record quarterly performance for Q4FY20, driven by portfolio optimization efforts and better cost efficiencies coupled with favourable demand for lightweight, sustainable aluminium solutions across end-markets. Novelis recorded its highestever quarterly adjusted EBITDA of US$383 million, a growth of 7% over the prior year. Q4FY20 Adjusted EBITDA per ton touched a record high of US$472, up 15% year-on-year. Novelis reported a Net Income (excluding tax-effected special items) of US$153 million in Q4FY20, an increase of 18% over Q4FY19. Revenue was down 12% year-on-year at US$2.7 billion in Q4FY20, mainly driven by lower average global aluminium prices and local market premiums....

Novelis delivered better than expected Q4FY20 earnings on the back of better than expected margins in spite of lower volumes. Adj. EBITDA grew by 1% YoY to USD361mn (PLe:345mn), led by 9% growth in unitary margins offset by 7% YoY dip in volumes at 811kt. Novelis' earnings would emerge strongly from Q2FY20 with auto plants restarting in North America and Europe. We reiterate our positive stance on HNDL on the back of attractive valuations, comfortable B/S and stable earnings outlook. Maintain BUY with TP of Rs175...

We maintain our FY21/FY22E EBITDA estimates and reiterate our rating on expected deleveraging in FY22E supported by lower capex, cost control and resilient volumes (exports and strong beverage can demand). After adjusting for hedging gain of INR1.0b in the copper business, Adj. EBITDA stood at INR13.4b, up 10% QoQ (down 3% YoY). HNDLs consolidated FY20 revenue/EBITDA/Adj. PAT declined at a lesser rate of 9%/8%/29% YoY to INR1,181b/INR142b/39b on strong margins at FY20 OCF/FCF (post capex and interest) stood at INR127b/INR30b. For FY21, management has guided for 1% YoY decline in aluminum volumes whereas copper volumes are expected to remain flat. The company has lowered its capex guidance to INR15b for the India business, which includes INR3.5b for the Utkal expansion. Share of CC rods stood 4QFY20 cost of production declined 5% QoQ due to lower coal and other Copper segments reported EBITDA includes hedging gain of INR1.0b due to sharp decline in copper prices during the quarter.

Novelis auto finishing lines that constitute ~20% of its volumes, however, have been impacted as its auto customers are either shut or operating at low production levels. As a result, we expect Novelis volumes to decline by 10% YoY and EBITDA per ton to fall by 14% YoY to USD380/t in FY21, leading to a 23% YoY fall in FY21E EBITDA to USD1.1b. We expect both volumes and margins to recover in FY22E as auto sales normalize driving an expected 17% YoY EBITDA growth. While cost benefits (lower energy cost, higher linkage coal supply, lower caustic soda cost, etc.) should help partly cushion the impact on margin, we still estimate India EBITDA to decline 26% YoY in FY21 due to lower volumes and LME price. We also expect LME to improve gradually from current 10- year lows due to supply curtailments and average USD1,575/t in FY21 and USD1700/t in FY22E.

Novelis delivered better than expected Q4FY20 earnings on the back of better than expected margins in spite of lower volumes. Adj. EBITDA grew by 1% YoY to USD361mn (PLe:345mn), led by 9% growth in unitary margins partially offset by 7% YoY dip in volumes at 811kt. South American/Asian operations drove the show with 13%/24% YoY growth in EBITDA at USD112mn/USD56mn on the back of better scrap spreads and higher premiums. European...

However, we rating given the attractive valuation (5x FY22E EV/EBITDA) and ~75% EBITDA contribution from the non-LME business (Novelis and Aleris), which provides more stability to earnings. While beverage can demand remains resilient in North America and Europe due to strong in-house consumption trend, it could get impacted in Asia and South America due to trade restrictions, lower tourism and decline in consumer spending. Reduced tourism, public events and consumer spending should impact demand Due to Auto customer shutdowns in Europe and North America from late- Mar20, Novelis auto facilities remain shut. We have also reduced volume estimates by 9% in FY21E and expect normalized We have factored in EBITDA of USD210m/USD250m from Aleris operations for FY21/FY22E. With ~75% EBITDA contribution from non-LME business i.e. the conversion business (Novelis + Aleris), we see stability in Hindalcos earnings.

EBITDA declined 9.9% YoY impacted by lower realizations, only partially offset by lower costs; However, Novelis' EBITDA rose 7.0% YoY to USD 343mn and EBITDA/tonne stood at USD 430 (+7.0% YoY) driven...