INSUBCONTINENT EXCLUSIVE:
MUMBAI: The Aditya Birla Group, which owns global aluminium producer Novelis, is set to benefit from the rising spread between recycled
prices of the metal and its trading quotes on the London Metal Exchange (LME), with the ease in scrap collections making European and North
American plants more globally competitive for recycled output.
Novelis, the US-based subsidiary of Hindalco, makes automotive sheets and
beverage cans and has facilities in Europe, North and South America, and Asia
Last fiscal, the aluminium convertor used about 60 per cent scrap, the usage of which is relatively higher in the developed markets such as
the US compared to Asia.
Thus, the rising recycling spread over the LME prices will give Novelis an advantage over its competitors, mainly
mainland Chinese companies
On scrap usage, Novelis earns a spread between the price of recycled aluminium and LME aluminium prices, and the local premium
tonne, which analysts expect to be in the range of $900 to $1,000 per tonne
US, Novelis also has operations in Brazil where it is expected to benefit from the weak Brazilian currency, which has fallen 12 per cent
against US dollar in the last three months
Lower aluminium inventory (Ex-China) is also positive for Hindalco: From January to May 2018, world markets were in aluminium deficit of 1.1
The rupee depreciation over the last few months will also help Indian operations
historical average of 6.5 times
This is at a 15 per cent discount to its global peers as compared to historical average of 10 per cent premium
With improving fundamentals, these valuations appear attractive
Investors will also be watching out for any acquisitions by Novelis, given that it operates at close to full utilisation and has about
48,000 crore in long-term debt on its books
In case of any inorganic growth, the valuation of any likely acquisition will influence its share price.
