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Novelis reported 3QFY11 EBITDA of US$238m (our forecast US$268m). Management
highlighted its focus on de-bottlenecking and recycling initiatives. The capital return of
US$1.7bn is positive move and unlocks value by lowering the overall cost of debt. We raise
FY12/13F EBITDA by 2%/1% and our TP to Rs315.
Novelis 3QFY11 results: Net sales in line; EBITDA US$238m vs US$268m forecast
Hindalco’s wholly-owned subsidiary Novelis Inc. reported net sales of US$2.56bn (+1%qoq
and +21%yoy), in line with our expectations. Volumes at 715KT (-3%qoq and +5%yoy) were
in line with our expectation of 710KT. EBITDA at US$238m (-18%qoq and +20%yoy) was
below our expectation of US$268m due to i) seasonality and ii) weak margins at European
operations. EBITDA/t was US$333 (-15%qoq and +14%yoy). Adj. pre-tax net income was
US$85m compared with US$69m at 3QFY10 and US$137m at 2QFY11.
Debt restructuring complete; focus now on de-bottlenecking, recycling
Novelis has restructured its debt, which has: 1) elongated the maturity profile from 2014-15
to 2017; 2) increased overall debt from US$2.4bn to US$4bn; and 3) provided a capital
return of US$1.7bn to Hindalco. This will allow Hindalco to offset interest costs and lower the
weighted average cost of debt across the group. The company expects de-bottlenecking
initiatives across all locations to raise capacity by 250kt by FY14. The proposed closures of
Bridgnorth, UK and Aratu, Brazil operations would add US$30m to EBITDA.
Debt restructuring unlocks value, raises Novelis volume estimates. Raise TP to Rs315
We adjust our balance sheet for: 1) an extra US$1.6bn of debt in Novelis, and 2) the capital
return of US$1.7bn to Hindalco. This substantially eases Hindalco’s Indian leverage capability
and allows the company to focus on expansion. We also raise our FY12/13 Novelis volume
assumptions by 2% to factor in: 1) de-bottlenecking initiatives; and 2) the Pinda, Brazil expansion.
Our DCF value for Novelis has thus fallen from Rs140 to Rs127. We value CWIP at Rs30ps, a
50% discount to book value. Management highlights strong underlying demand for rolled
products across all market segments and geographies, and underlying cost pressures and a
tightness in procuring UBCs in North America, which could be tackled by higher volumes and
reducing fixed costs. Hindalco is our top pick in the space.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Novelis reported 3QFY11 EBITDA of US$238m (our forecast US$268m). Management
highlighted its focus on de-bottlenecking and recycling initiatives. The capital return of
US$1.7bn is positive move and unlocks value by lowering the overall cost of debt. We raise
FY12/13F EBITDA by 2%/1% and our TP to Rs315.
Novelis 3QFY11 results: Net sales in line; EBITDA US$238m vs US$268m forecast
Hindalco’s wholly-owned subsidiary Novelis Inc. reported net sales of US$2.56bn (+1%qoq
and +21%yoy), in line with our expectations. Volumes at 715KT (-3%qoq and +5%yoy) were
in line with our expectation of 710KT. EBITDA at US$238m (-18%qoq and +20%yoy) was
below our expectation of US$268m due to i) seasonality and ii) weak margins at European
operations. EBITDA/t was US$333 (-15%qoq and +14%yoy). Adj. pre-tax net income was
US$85m compared with US$69m at 3QFY10 and US$137m at 2QFY11.
Debt restructuring complete; focus now on de-bottlenecking, recycling
Novelis has restructured its debt, which has: 1) elongated the maturity profile from 2014-15
to 2017; 2) increased overall debt from US$2.4bn to US$4bn; and 3) provided a capital
return of US$1.7bn to Hindalco. This will allow Hindalco to offset interest costs and lower the
weighted average cost of debt across the group. The company expects de-bottlenecking
initiatives across all locations to raise capacity by 250kt by FY14. The proposed closures of
Bridgnorth, UK and Aratu, Brazil operations would add US$30m to EBITDA.
Debt restructuring unlocks value, raises Novelis volume estimates. Raise TP to Rs315
We adjust our balance sheet for: 1) an extra US$1.6bn of debt in Novelis, and 2) the capital
return of US$1.7bn to Hindalco. This substantially eases Hindalco’s Indian leverage capability
and allows the company to focus on expansion. We also raise our FY12/13 Novelis volume
assumptions by 2% to factor in: 1) de-bottlenecking initiatives; and 2) the Pinda, Brazil expansion.
Our DCF value for Novelis has thus fallen from Rs140 to Rs127. We value CWIP at Rs30ps, a
50% discount to book value. Management highlights strong underlying demand for rolled
products across all market segments and geographies, and underlying cost pressures and a
tightness in procuring UBCs in North America, which could be tackled by higher volumes and
reducing fixed costs. Hindalco is our top pick in the space.
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