Hindalco Target Price Raised By Kotak Securities On Novalis' Ebitda Estimates Upgrade

Kotak upgrades Novelis operating profit based on higher margin and improvement in end-market segments.

<div class="paragraphs"><p>(Source: Hindalco Industries website).</p></div>
(Source: Hindalco Industries website).

Hindalco Industries Ltd.'s target price was raised by Kotak Securities after the brokerage hiked the operating profit estimate of the company's U.S. unit, Novalis Corp., for the current and next financial years.

Novelis Corp. on Tuesday reported a net profit of $157 million for the July-September quarter, down 14.4% from a year ago, the company said.

Although Ebitda margins expanded by 36 basis points year-on-year to 10.9%, adjusted Ebitda declined by 4.4% year-on-year to $418 million.

The drop in net sales for this was primarily due to lower aluminium prices and a 5% decrease in flat-rolled product shipments to 933 kilotonne. This was partially offset by higher product pricing and a favourable product mix, the company said in a release.

"We are pleased to see another quarter of sequential improvement in adjusted Ebitda, driven by initial demand recovery in our core beverage packaging sheet end market as industry supply chain destocking activity is largely behind us," Steve Fisher, chief executive officer of Novelis, said.

Shares of Hindialco were trading 0.44% higher at Rs 486.70 apiece, compared with a 0.19% rise in the benchmark Nifty 50.

Here's What Kotak Securities Makes Of Results

  • Adjusted Ebitda at $484 million came in 6% ahead of estimates due to lower costs and operating leverage.

  • Auto and aero segments remain robust, while destocking in beverage can segment appears largely behind.

  • Improving Novelis earnings against Hindalco's weak India performance to keep earnings rangebound.

  • Growth capex would significantly increase from second half of the year, led by $2.75 billion greenfield project in North America.

  • Raises Novelis' Ebitda estimates by 7% and 5% for the current and the next fiscals, respectively.

  • Raises Hindalco's Ebitda estimates by 4.7% and 3.3% for the current and the next fiscals, respectively, on higher Novelis margin.

  • Maintains 'add' and revises target price of Hindalco to Rs 535 from Rs 505 earlier, implying a 10.3% upside.

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