Hindalco stocks spurt 7% on Aleris deal

BL Internet Desk July 27 | Updated on July 27, 2018 Published on July 27, 2018

Shares of Hindalco Industries Ltd rose as much as 6.9 per cent to Rs 220.80 as the company had said on Thursday that its US unit Novelis Inc would buy aluminium processor Aleris Corp for $2.6 billion.

Hindalco’s wholly owned subsidiary, Novelis Inc, had on Thursday announced the signing of a definitive agreement to purchase Aleris Corporation, a global aluminium rolled products major, headquartered in the United States, for $2.58 billion in a debt finance deal.

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The deal may diversify Novelis' product mix and lift its auto sheet capacity, but could be Rs 16-23 per share value dilutive based on estimates, Jefferies analysts say, maintaining “buy” rating and a price target of Rs 318.

Jefferies says risk-reward is still positive as aluminium prices should be underpinned by cost push. Novelis margins should continue to expand and valuation appears attractive.

While heavy capital expansion phase at Aleris is over, operating cash flows have been negative in CY17 and Q1 CY18. Hence, guidance of net debt/EBITDA reaching 3x by CY21 helped by Aleris' cash flows is distant, and at this stage unconvincing, Credit Suisse says. It has maintained “outperform” rating and a price target of Rs 310.

About 16 million shares changed hands, compared with 30-day average of 10.3 million. About 27 of 28 brokerages covering the stock rate it ”buy” or higher, and 1 “sell”; their median price target is Rs 305, according to Thomson Reuters data.

(With inputs from Reuters)

Published on July 27, 2018
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