PL First Cut - Novelis (Hindalco) 1QFY24

PL First Cut – Novelis (Hindalco) 1QFY24 – Tushar Chaudhari – Research Ananlyst, Prabhudas Lilladher Pvt Ltd

Novelis (Hindalco) 1QFY24 Results: EBITDA/t In-line due to weaker volumes; adj. EBITDA/t improving gradually

- Novelis reported 1QFY24 adjusted EBITDA of USD479/t (up 11% QoQ; -18% YoY); largely in-line with annual guidance of gradual recovery. FRP Volumes declined 8.6% YoY (down 6% QoQ) to 879kt led by weak volumes from beverage can segment across geographies and weaker volumes in Building & Construction in N America & Europe. Average realization declined 12% YoY (down 1% QoQ) to USD4,654/t.

- South American volumes declined sharp 17% QoQ (20% YoY) led by can segment however mgmt. expects volumes to recover gradually as destocking is almost over. Rest of the geographies FRP volumes declined 4-8% YoY and on sequential basis improved 1-2% except Asia where volumes declined 6% QoQ.

- Mgmt expects volumes to recover gradually as they are getting strong traction in Autos and Aerospace division. Weakness in cyclical end markets putting pressure on Specialities segment which will improve along with economic conditions.

- Adj. EBITDA/t in S. America declined 27% QoQ while N. America and Asia saw sharp 27% & 21% growth QoQ. Europe EBITDA declined 3% QoQ. Mgmt. reiterated its confidence of achieving its guidance of USD525/t EBITDA as volumes improve gradually.

- Novelis signed LT agreement to supply beverage can sheet to the Coca-Cola system during the quarter.

- Capex during quarter was up 3x YoY at USD 333 mn as mgmt. is on track to set up an integrated US rolling & recycling facility at Bay Minette by FY26. Earthwork is completed, building piling & foundation work is underway. Building steel delivery to begin from 3QFY24.

- HNDL remains one of our preferred play in metals space given a) Novelis performance is expected to improve gradually as it will have dual benefit of lower inflation and better operating leverage from 2HFY24; b) improving trajectory for India aluminum business given subsided cost inflation YoY, bottomed out aluminium prices and improving volumes from high value downstream businesses; c) enhanced resource securitization in long term and significant correction in coal prices to benefit in near term.

- At CMP the stock is trading at attractive valuations of 4.9x EV of FY25E EBITDA.