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* Novelis (HNDL)’s 1QFY24 revenue was down 20% YoY to USD4.1b. However, revenue was 10% above our estimate of USD3.7b due to improved product mix, higher product pricing and improved automotive shipments, partially offset by lower beverage can shipments and lower LME.

* Adjusted EBITDA was down 25% YoY at USD421m (in line with our estimate of USD410m) while EBITDA/t stood at USD479 (USD34/t above our estimate of USD445/t). The improvement in EBITDA/t was due to higher price/mix improvement and forex gains.

* APAT dipped 41% YoY to USD166m, which was 11% above our estimate of USD149m in 1QFY24.

* Shipments stood at 879kt (down 9% YoY), in line with our estimate of 921kt.

* The shipments across North America (NA) and Europe (EU) were higher by 2% and 1% QoQ, respectively. However, shipments across NA/EU/Asia/ South America (SA) were down 4%/8%/5%/20% YoY at 370kt/250kt/176kt/ 119kt during the quarter.

* Channel destocking in beverage industry, lower demand from specialty vertical, slowdown in China and lower packaging demand from SA hit the shipments. ? Net debt for 1QFY24 increased to USD4.5b (vs. USD4.1b in Mar’23) and net leverage ratio stood at 2.7x (vs. 2.3x in Mar’23).

EBITDA/t guidance maintained at USD525 in 4QFY24

* HNDL’s EBITDA was hit in FY23 due to lower beverage can shipments, softer demand for specialty products, less favorable metal benefit, higher energy cost, weaker macroeconomic scenario, etc.

* However, channel destocking from the beverage can segment is almost completed and energy prices have remained range bound.

* Management expects the demand from beverage can segment to pick-up in 2HFY24 and believes robust demand to continue from automobile sector.

* In line with the robust demand across different geographies, management has raised its EBITDA/t guidance for the next few quarters from USD425- 450 to USD450-500 and expects to touch USD525 by 4QFY24.

Valuation and view

* Management has guided for an improvement in volumes from 2QFY24 onwards and expects the main building foundation work at Bay Minette to be completed by end-FY24.

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