Target: ₹530

CMP: ₹430.05

Aluminium prices have rallied about 7 per cent from recent lows on hopes of improved demand from China amidst easing Covid norms. Increased smelter curtailments across Europe on account of the energy crisis and multi-year low LME inventory at at 481 KT will likely support Aluminium prices going forward.

Aluminium market (ex-China) is expected to remain in deficit (Norsk forecast) during 2023 fuelled by smelter curtailments despite expectations of recession led demand headwinds while China is expected to move to surplus given a higher rate of production inside China.

Novelis continues to be relatively well placed despite fears of recession as about 60 per cent of Novelis’ business comes from can body, which is likely to have a resilient demand outlook. The auto business which accounts for about 18 per cent of the business has a good order-book although building and construction segment may witness some slowdown.

Novelis expects ₹500 million of free cashflow in FY23 (1H free cashflow was negative USD90mn) aided by working capital release in 2H. India operations are likely to benefit from declining thermal coal prices (nearly 25-30 per cent) and improving linkage coal availability.

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