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Last Updated : Apr 09, 2020 11:14 AM IST | Source: Moneycontrol.com

Hindalco shares jump 5% after Novelis receives clearance for Aleris acquisition

Novelis, the wholly-owned subsidiary of Hindalco Industries, has received the final regulatory clearance needed to complete its acquisition of Aleris. The European Commission (EC) has approved the Liberty House Group as a suitable buyer of the Duffel facility.

 
 
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Shares of Hindalco Industries climbed 5 percent in morning trade on BSE on April 9, buoyed by reports that Novelis has received the final regulatory clearance for the Aleris acquisition.

Novelis, the wholly-owned subsidiary of Hindalco Industries, has received the final regulatory clearance needed to complete its acquisition of Aleris. The European Commission (EC) has approved the Liberty House Group as a suitable buyer of the Duffel facility.

As per a report by CNBC TV18, JPMorgan has an 'overweight' call on Hindalco with a reduced target price of Rs 170 from Rs 195 earlier.

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JPMorgan said the acquisition of Aleris in the new economic environment may be earnings dilutive in the short-term. "We ascribe a negative equity value of Rs 30 per share for the Aleris transaction," said JPMorgan.

JPMorgan expects a sharp volume and margin cuts at Novelis and lower EPS by 30 percent.

On the other hand, Kotak Institutional Equities has a 'buy' recommendation on Hindalco with a target price of Rs 225.

"The Aleris acquisition would increase Hindalco’s debt by $2.2 billion in the interim till they divest the Lewisport plant, which in the current environment could take 9-12 months. We estimate net debt/EBITDA to increase to 4.4 times in FY2021E given earnings hit led by COVID-19," Kotak said.

"With interest coverage of 2.5 times and FCF generation, we see the near-term spike in leverage manageable. Nonetheless, increase in leverage is discomforting given downside risk to earnings in FY2021E if COVID-19 led disruptions extend beyond one quarter," Kotak added.

The brokerage believes the stock is pricing in the uncertainty at current at 0.5 times P/B (ex-goodwill) FY2022E versus historic mean of 1.1 times and in line with 2008/2015 trough of 0.4 times.

Kotak finds risk-reward attractive at 4 times EV/EBITDA FY2022E versus historic mean of 6.5 times.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Apr 9, 2020 11:14 am
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