Shares of Hindalco Industries dipped 7 per cent to Rs 657.65, hitting an eight-week low on the BSE
Shares of Hindalco Industries dipped 7 per cent to Rs 657.65, hitting an eight-week low on the BSE in Thursday’s intra-day trade after Novelis Inc, the US-based aluminum producer and subsidiary of the company, on Wednesday reported an 18 per cent decline in net income to $128 million in the September quarter of 2024-25 (Q2FY25).
The bigger factor that resulted in the fall in share price was the fact that Novelis withdrew its short-term EBITDA per tonne guidance of $525.
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Novelis attributed the suspension of guidance to tight scrap spreads due to accelerated scrap purchases by China.
China accelerated its aluminium scrap purchase, which led to a sharp increase in prices after liberating its policies.
For the quarter gone by, Novelis’ EBITDA per tonne stood at $498, down from $519 during the same quarter last year and $525 in the June quarter.
Adjusted EBITDA for Novelis was impacted due to a $25 million hit the company had to take due to flooding in Sierre.
Additionally, unfavourable mix from lower automotive shipments, along with less favourable metal benefit from higher scrap prices also impacted the company’s EBITDA per tonne. The unfavourable mix from lower automotive shipments was partly offset by higher prices.
The management of Novelis expects headwinds to persist in the current as well as the March quarter due to increasing aluminium scrap prices.
Additionally, the December quarter is seasonally weak as well for Novelis, which can cause volatility in the company’s short-term growth.
Net debt at the end of the quarter also increased to $4,760 million from $4,629 million during the June quarter.
However, the management remains optimistic about Q3 performance, despite scrap price pressures, due to its superior operational efficiency. Guidance remains on hold until the market conditions stabilise, the company said. It anticipates that scrap price hikes will impact H2FY25 results
“EBITDA per tonne for the quarter came in below our expectation and was impacted due to sharp rise in aluminium scrap prices and unfavourable product mix amid slowdown in auto segment. Moreover, it anticipates further impact on operating performance due to same over the next two quarter as well”, ICICI Securities said in a note.
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Consequently, Hindalco’s financials will also be impacted given that Novelis contributes 60 per cent and 56 per cent of Hindalco’s consolidated sales and Ebitda. However, from a long-term perspective, the brokerage firm maintains a positive outlook on the stock supported by healthy demand for aluminium metal due to its growing applications in the automobile and renewable energy sectors, strategic capacity expansion at Novelis and Hindalco. However, in the near term, it lacks triggers for an up move except for any surprise on Chinese stimulus, it added.
Meanwhile, the company’s board of directors of Hindalco is scheduled to meet on Monday, November 11, 2024, to consider and approve the unaudited financial results of the company for the quarter and half-year ended September 30, 2024.
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