Novelis delivered another quarter of strong earnings with Adj. EBITDA margins at US$416/t (PLe:US$395). Adj. EBITDA rose to record high of US$332mn (PLe:US$320mn), up 15% YoY/4% QoQ despite 20kt of lower shipments due to unplanned downtime at North American Auto customer and 10-day National Trucker's strike in Brazil. Managements expects to recover the lost volumes in Q2 with further expansion in margins on the back of higher scale and rich margins in Auto and Brazilian operations. However, management highlighted that abnormal spreads on recycling/scrap raw material added US$20/t to the margins. It could take couple of quarters for these spreads to normalize to historical levels. We revise Novelis' EBITDA estimates for FY19e and FY20e upwards by 4% each to factor in higher margins at US$400/t.
OutlookWe maintain Accumulate with TP of Rs280, EV/EBITDA of 6.7x FY20E.
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