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Hindalco - Stock Update

Novelis reports steady earnings.

Novelis reported EBITDA of US$252 mn and an adjusted EBITDA of US$54 mn despite a sharp 20% yoy drop in volumes. The drop in qoq EBITDA is just from US$100 mn to US$72 mn qoq if further adjusted for non-cash exhange variations. Management has guided for strong earnings in the coming quarters due to restructing initiatives, increase in volumes in Asia etc.

Steady earnings in a weak market.
Volumes in 4QFY2009 were sharply lower by 20% compared to last year due to sharp demand contraction in the auto, construction and other markets. However, can volumes were stable and have largely contributed to the profitability during the quarter.

Strong EBITDA improvement guidance for 1QFY2010.

Outlook for 1QFY2010 expected to improve significantly due to the following:
1) benefits from restructuring initiatives undertaken in 3QFY2009 and 4QFY2009 to start flowing through 2) non metal commodity price deflation 3) strong recovery in Asian shipments driven by China.

Valuations.

Investors could wait and buy Hindalco on declines with a target price of Rs135.
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