8 May 2019
4QFY19 Results Update | Sector: Metals
Hindalco
Buy
BSE SENSEX
37,789
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
S&P CNX
11,359
HNDL IN
2,229
450.5 / 6.5
260 / 183
-4/-25/-23
2144
65.3
CMP: INR201
TP: INR288(+44%)
Healthy volumes and favorable spreads drive perf.
FCF generation remains strong; Reiterate Buy
Novelis delivered another strong quarter. Adj. EBITDA increased 12% QoQ to
USD357m (our estimate: USD319m), as volumes grew 9% QoQ (+8% YoY) to
870kt and EBITDA/t improved (from an already strong base) by 2% QoQ to
USD410/t (our estimate: USD388). Adj. PAT grew 16% QoQ (+27% YoY) to
USD154m.
For FY19, volumes grew 2.7% YoY, adj. EBITDA/t increased to best-ever
USD417, adj. EBITDA rose 12% YoY to INR1.36b and adj. PAT increased ~51%
YoY to USD556m. Net debt declined USD150m YoY to USD3.4b.
The share of beverage cans in volumes increased by ~200bp YoY to 63% in
FY19, at the cost of lower-margin specialty products. The share of auto in
volumes was steady at ~20% due to capacity constraints. Recycled content
in shipments increased by ~200bp to 61% in FY19.
Outlook remains robust for Novelis:
Demand for aluminum in auto remains
favorable in the US. Chinese auto aluminum market is weak but likely to
recover on a positive outlook on EVs. Beverage cans outlook is also turning
optimistic. Management has guided for robust EBITDA/t of more than
USD400 for FY20. Despite doubling of capex to USD700m (upfronting of
project capex) in FY20, FCF is guided to remain significantly positive.
Valuations attractive, maintain Buy:
Hindalco continues benefiting from
Novelis’ strong business and fully integrated smelting operations in India.
We believe it will continue generating FCF. Aleris acquisition is strategic and
value accretive, in our view, and it too will be FCF positive at margin. The
stock trades at attractive valuation of 5.4x EV/EBITDA and 7.5x P/E on FY20E.
We value it at INR288/share based on SOTP, 44% upside. Reiterate
Buy.
4Q
805
2.0
3,066
17.0
319
9.2
10.4
396
60
87
172
(9)
163
54
33.1
112
138
121
1Q
797
1.5
3,097
16.0
332
14.9
10.7
417
63
86
183
7
190
53
27.9
137
36
130
FY19
2Q
3Q
807
800
0.6
0.5
3,136 3,009
12.2
-2.5
355
322
17.5
5.6
11.3
10.7
440
403
66
64
86
88
203
170
(23)
(55)
180
115
64
37
35.6
32.2
116
78
-62
-36
139
133
FY18
4Q
870
8.1
3,084
0.6
357
11.9
11.6
410
65
90
202
(51)
151
48
31.8
103
-8
154
3,188
3.9
11,614
21.1
1,215
12.0
10.5
381
246
354
615
240
855
233
27.3
609
1,253
369
FY19
3,274
2.7
12,326
6.1
1,366
12.4
11.1
417
258
350
758
(122)
636
202
31.8
434
-29
556
vs Est
4QE
(%)
821
6
2.0
2,995
3
-2.3
319
12
-0.1
10.6
388
6
60
8
89
1
170
19
-
170
-11
48
1
28.0
122
9
122
26
Financials & Valuations (INR b)
Y/E Mar
2019
2020E
Net Sales
1,287
1,482
EBITDA
159.7
187.2
PAT
59.6
59.9
EPS (INR)
26.7
26.9
Gr. (%)
41.6
0.5
BV/Sh (INR)
187.2
212.2
RoE (%)
15.1
13.5
RoCE (%)
10.6
10.6
P/E (x)
7.5
7.5
P/BV (x)
1.1
0.9
2021E
1,536
197.2
68.4
30.7
14.2
240.8
13.5
10.6
6.5
0.8
Estimate change
TP change
Rating change
Quarterly Performance (Novelis) – USD m
Y/E March
Sales (000 tons)
Change (YoY %)
Net Sales
Change (YoY %)
EBITDA (adjusted)
Change (YoY %)
As % of Net Sales
EBITDA per ton (USD)
Interest
Depreciation
PBT (before EO item)
Extra-ordinary Income
PBT (after EO item)
Total Tax
% Tax
Reported PAT
Change (YoY %)
Adjusted PAT
1Q
785
4.0
2,669
16.2
289
7.8
10.8
368
62
90
137
7
144
43
29.9
101
321
94
FY18
2Q
3Q
802
796
3.8
6.1
2,794 3,085
18.3
33.4
302
305
11.9
19.6
10.8
9.9
377
383
62
62
91
86
149
157
274
(32)
423
125
116
20
27.4
16.0
307
121
-445
92
83
121
Sanjay Jain – Research Analyst
(SanjayJain@motilaloswal.com@MotilalOswal.com); +91 22 6129 1523
Aniket Mittal – Research Analyst
(Aniket.Mittal@MotilalOswal.com); +91 22 61291572
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.