Hindalco share price: Jefferies reiterates Buy rating with revised price target of Rs 350

Hindalco’s Q3 EBITDA rose 53% YoY and came 6% above Jefferies estimate. Novelis is benefiting from good demand across autos, cans and specialty segments, and delivered decade-high EBITDA/ton. India aluminum EBITDA also improved QoQ led by higher LME prices, but copper business remained subdued. Net debt was down 7% QoQ for the second consecutive quarter. Jefferies expects Hindalco to deliver steady performance along with deleveraging. Jefferies reiterates Buy rating with revised price target of Rs 350.

Hindalco’s Strong Q3 performance:

Hindalco's Q3 consolidated EBITDA at Rs 52 bn was up 53% YoY and came 6% above Jefferies estimate. Novelis delivered a strong quarter with EBITDA up 39% YoY as volumes grew 17% YoY (boosted by Aleris acquisition) and EBITDA/t rose to decade-high US $ 510. India aluminum EBITDA was also up 24% QoQ led by higher LME aluminum prices. Copper EBITDA, however, remained subdued, down 3% QoQ (-21% YoY). Hindalco’s Q3 consolidated recurring PAT was up 93% YoY. Net debt was down 7% QoQ for the second consecutive quarter.

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Novelis outlook strong:

Novelis is benefiting from good demand across segments and its plants are running near full capacity. It expects 2021 industry demand to grow 25-30% in auto, 5-10% in specialty and aerospace, and 3-6% in beverage cans. In autos, rising OEM focus on sustainability and shift towards EVs/SUVs/trucks is boosting aluminum demand; Jefferies believes auto business could see some demand headwind in Q4 FY21 though as OEMs are facing semiconductor supply constraints. Can segment is benefiting from higher at-home consumption and shift in packaging from plastics and glass to aluminum. Favorable housing fundamentals and recovery in transportation in the US and Europe are boosting specialty segment demand as well. Novelis acknowledged some risk to scrap spreads and maintained its EBITDA/ t guidance of US $470-500 (Q3: US $510).

Hindalco says Aluminum prices supportive but some cost pressure in India:

LME spot aluminum price at US $2050/ton is 7% higher than 3Q average, although the full benefit might not flow through for Hindalco's India business in Q4 as the company hedges part of its aluminum price exposure. Hindalco also expects its aluminum smelting cost to rise 3% QoQ in Q4. The 0.5 mtpa Utkal alumina refinery expansion, now expected to start in 1QFY22 (earlier Q4 FY21), should help replace some of the higher cost alumina from an older facility. Copper conversion margins (TC/RC) are down 4% YoY for 2021 but by-product prices have improved.