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Novelis reported 2Q adj. EBITDA of USD484mn, significantly above JMfe of USD434mn. Adj. EBITDA came in higher sequentially due to operating leverage aided by 6% volume growth QoQ. The company achieved an EBITDA/t of USD519 during 2Q vs US$479 in 1Q. Key takeaways from the call are –1) EBITDA/t in 3Q expected in range of US$450- 500/t - lower due to planned shutdown in Oswego, US 2) the company remains committed towards its earlier EBITDA /t guidance of USD525 in 4Q 3) Company has signed long term supply contracts with Ball North America for aluminium beverage packaging sheet from its Bay Minette plant – yet to be commissioned; aluminium plates contracts with Airbus 4) the company endeavours to maintain Net Debt/EBITDA at 3x; stated capex guidance towards lower range of USD1.6-1.9bn.The earnings trajectory is likely to benefit post de-stocking and plant commissioning resulting in higher shipments and margins keeping its journey of sustainable EBITDA/t of US$525/t intact. Hindalco, given ~70%+ steady/strong EBITDA being non-LME linked, remains our preferred play in the metal space. Maintain BUY.

* Higher shipments aided margin recovery: Net sales remained flat sequentially at USD4.1bn; largely on account of lower realizations offset by improved volumes. Total flat rolled product shipments stood at 933 ktons in 2QFY24 compared to 879 ktons in 1QFY24.

* Margins aided by lower RM and favourable mix: Adj. EBITDA increased 15% QoQ to USD484mn in 2QFY24 vs USD421mn in 1QFY24. The underlying increase in Adj. EBITDA is primarily due to a favourable product mix and lower input costs. Novelis achieved an EBITDA/t of USD519 in 2QFY24 (vs. guidance of USD450/t), compared to USD479 in 1QFY24.

* Beverage can segment volumes to improve: Beverage cans segment reported healthy volumes post de-stocking. However; volumes are likely to be impacted in 3Q due to planned plant maintenance. The company also signed long-term agreement for supply of aluminium beverage can sheet to Ball North America and has all capacities booked. US markets remain healthy where as demand pressure continued in Mexico, Europe and Southeast Asia. On automotive front demand remained largely stable tracking pent-up demand in recent past. Aerospace demand to remain strong on back of increased backlog on OEM front.

* Higher capex results in cash outflow: Novelis reported FCF outflow of US$300 mn in 1HFY24Overall. Company plans to spend USD1.6-1.9bn during FY24 implying increased capex spends in coming quarters which is likely to be offset by reduced working capital requirement. Company also is in process of commissioning its facility at Oswego, US.

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