13 August 2020
1QFY21 Results Update | Sector: Metals
Hindalco
Buy
Estimate change
TP change
Rating change
CMP: INR176
TP: INR233 (+33%)
Outlook for Novelis positive
Demand and margin improving to pre-COVID levels
Hindalco’s (HNDL) subsidiary Novelis’ 1QFY21 operating results were weak
(in-line). EBITDA was down 40% YoY to USD219m on like-to-like basis
(excluding Aleris) due to the impact of COVID-19.
However, business performance improved substantially with both volumes
and margin now inching back to pre-COVID levels. We have raised our
FY21/FY22E EBITDA estimates by 4%/6% and reiterate
Buy.
Note that
HNDL IN
valuation at 5.3x FY22E EV/EBITDA (~20% discount to 10-year average) does
2,229
not factor in the expected ~9% CAGR in EBITDA over FY20-22E.
394.8 / 5.4
221 / 85
Novelis’ 1QFY21 EBITDA declines on lower volumes and adverse mix
3/-2/-2
th
1943
1QFY21 results include Aleris’ acquisition from 15 Apr’20. Thus, it is strictly
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Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Financial Snapshot (INR b)
Y/E MARCH
Sales
EBITDA
Adj. PAT
EBITDA Margin (%)
Cons. Adj. EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
Ratios
Net D:E
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA(x)
Div. Yield (%)
FCF Yield (%)
2020 2021E 2022E
1,181 1,308 1,447
142.1 142.3 167.7
38.9
34.2 48.6
12.0
10.9 11.6
17.5
15.4 21.8
-29.2 -12.1
42.0
172
174
193
1.0
10.1
8.5
8.0
10.1
1.0
5.5
0.7
15.0
1.4
8.9
6.7
12.9
11.4
1.0
6.6
1.0
15.6
1.2
11.9
8.1
14.5
8.1
0.9
5.3
1.5
23.8
not comparable to previous quarters.
Reported Adj. EBITDA at USD253m was down 31% YoY (v/s est. USD264m
incl. Aleris). However, it was down 40% YoY to USD219m (excl. Aleris) with
EBITDA of USD34m (included in 1QFY21 results).
Volumes declined 6% YoY to 781kt (v/s est. 755kt) on a reported basis and
by ~15% YoY to 706kt on a like-to-like basis (excluding 75kt sales in the
quarter from Aleris). Volumes were largely impacted by ~50% YoY decline in
automotive shipments.
Adj. EBITDA/t was down 27% YoY to USD324/t (v/s est. USD351/t). On ex-
Aleris basis, it was down 30% YoY to USD310m, due to weak volume mix
(lower auto business) and negative operating leverage.
FCF post capex was negative at USD146m (v/s negative USD94m in 1QFY20).
Capex in 1QFY21 stood at USD106m (v/s USD162m last year).
Net debt increased by USD3.0b QoQ to USD6.2b by end-Jun’20 due to
acquisition of Aleris for USD2.8b as well as increase in working capital. Net
debt/EBITDA increased to 3.8x (v/s 2.1x at end-FY20).
Liquidity profile remained strong at USD2.1b at end-Jun’20.
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Jun-20 Mar-20 Jun-19
34.7
34.7
34.7
27.3
26.7
24.4
18.8
18.9
22.4
19.3
19.7
18.6
FII Includes depository receipts
Key Highlights: Volumes back to pre-COVID levels
Beverage can demand remained strong. Automotive volumes recovered
gradually and are back to pre-COVID levels. The company has achieved
record-high automotive volumes in China during 1QFY21.
Among the newly acquired portfolio from Aleris, performance of Aerospace
is likely to remain muted whereas Building & Construction is likely to
improve with recovery in the economy. Specialty continues to do well, led by
strong demand from electronics and EVs.
EBITDA is guided to improve in the ensuing quarters. Management expects
sustainable EBITDA/t of USD450-475.
Interest cost is expected at USD260-270m for the full year (v/s USD240m in
FY20), which is lower than expected due to the lower prevailing interest
rates.
Amit Murarka - Research analyst
(Amit.Murarka@motilaloswal.com)
Basant Joshi - Research analyst
(Basant.Joshi@motilaloswal.com)
28 July 2020
1
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.