ICICI Securities
Hindalco (Buy)
CMP: ₹115.05
Target: ₹199
Novelis has completed Aleris acquisition at a final price of $280 crore, which is about $200 million higher than the earlier announced $2.58 billion. The increase is on account of an additional payment of $50 million due to better than expected performance of Aleris over TTM. The rest is on account of the additional working capital debt assumed in Aleris to support ramped-up operations.
While acquiring all the 13 plants of Aleris, to satisfy regulatory requirements, Novelis will have to divest Lewisport (Kentucky, US) and Duffel (Belgium) as announced earlier. Adjusted for the divestitures (announced for Duffel and estimated for Lewisport), we estimate the residual Aleris value at about $1.7-1.8 billion and corresponding EBITDA at $200-250 million (without factoring-in any synergy benefits). The eventual acquisition multiple is 7.5-8x EV/EBITDA. Is it in the price? Largely, yes.
Maintain ‘buy’ with a target price of ₹199/share (0.67x FY22E book).