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Narnolia Financial Advisors
Hindalco (Buy)
CMP: ₹197.85
Target: ₹240
Novelis revenue growth of 3 per cent y-o-y was off the usual trend of recent quarters due to muted volume y-o-y at 800 kilo tonne (versus796 kt in 3QFY19) led by slowdown in auto sector in China and the UK, however at EBITDA level performance was stable with adjustaed EBITDA at $322 million (up 6 per cent y-o-y, down 9 per cent q-o-q) and margins at 10.7 per cent (vs10.4 per cent in 3QFY19 and 11 per cent in 2QFY19) led by operational efficiencies, optimal product mix and cost management.
At standalone level (ex-utkal) margins contracted further to due to higher input cost and higher other expenses with EBITDA at Rs.928cr (down 29 per cent y-o-y and 15 per cent q-o-q) and margins at 8 per cent (vs 12 per cent in 3QFY18 and 10 per cent in 2QFY19), however standalone plus Utkal EBITDA was at ₹1,717 crore (up 7 per cent y-o-y, down 2 per cent q-o-q) and margins were at 21.4 per cent (vs 22 per cent in 3QFY18 and 22 per cent in 2QFY19).Though we are positive on Hindalco led by its integrated Indian business with focus on increasing VAP share, strong performance at Novelis, capacity addition at Novelis and we believe Aleris acquisition is also a positive.
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