Hindalco Industries Steady Ahead of Q2 Results; Novelis Surpasses Profit Target Ahead of Schedule

Hindalco Industries’ stock remained stable in early trading as investors awaited its Q2 earnings report. Meanwhile, the company’s subsidiary, Novelis, has exceeded its operating profit target ahead of schedule. In early trading, Hindalco’s stock was at Rs 481.7 on the BSE, showing a slight 0.2 percent decline from its previous close. At the same time, the benchmark Sensex experienced a marginal 0.04 percent decline, reaching 64,919 points.

Novelis surpassed its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) target, achieving $519 per tonne two quarters earlier than anticipated, thanks to a significant increase in volumes. Novelis, which contributes over 70 percent of Hindalco’s EBITDA, has reported impressive results. All eyes are now on Hindalco Industries’ earnings report, scheduled for release on November 10.

Kotak Securities has upgraded Novelis’ EBITDA estimates by 7 percent for FY2024 and 5 percent for FY2025, based on recent strong performance and improvements in end-market segments.

In the July-September quarter, Novelis reported a 14 percent decrease in net sales and net profit from continuing operations, with figures totaling $4.1 billion and $157 million, respectively. The decline in revenue compared to the previous year was attributed to lower FRP dispatches and lower metal prices, although this was partially offset by higher automotive shipments, a favorable product mix, and increased product pricing. EBITDA also saw a slight drop, falling to $484 million from $506 million in the previous year but rising from $421 million in the previous quarter.

Novelis achieved a 6 percent improvement in volumes due to the end of destocking, driven by operational efficiencies and improved metal prices. The company, however, remains cautious about the specialty segment due to the uncertain macroeconomic environment.

Motilal Oswal, in its latest report, noted, “Volume growth across geographies is expected to remain stable going ahead, and Bay Minette expansion is likely to be completed as scheduled. Hindalco has secured long-term contracts for supplying beverage cans from the Bay Minette facility, which gives future revenue visibility.”

The report also highlighted the positive development of EBITDA-per-tonne improvement in Novelis, with the expectation that EBITDA per tonne could be sustained at over $500. EBITDA estimates for FY2024 and FY2025 were revised upwards by 4.8 percent and 4.2 percent, respectively.

The company’s management reported that the destocking issue in the beverage can segment has been resolved, and demand is returning to normal. Weak demand persists in the building construction sector due to high mortgage rates, while the auto and aerospace sectors continue to experience strong demand in the short term, with a positive outlook for the medium to long term.

In the third quarter of FY24, they expect per-tonne EBITDA to be in the range of $450 to $500 due to seasonal factors and planned shutdowns. However, they maintain a margin guidance of $525 per tonne in the fourth quarter of FY24 as volumes normalize.

Kotak Institutional Equities also revised its EBITDA estimates upward by 7 percent for FY2024 and 5 percent for FY2025, considering Novelis’ strong performance in Q2FY24.