Healthy prospects ahead for Hindalco; analysts positive on the stock

Strong performance by its US subsidiary Novelis and better returns in the copper business helped Hindalco Industries post consolidated revenue growth of 2 per cent quarter-on-quarter (Q-o-Q) to Rs 54,100 crore in the July-September quarter of 2023-23 (Q2FY24).

Novelis’ Flat Rolled Products (FRP) volumes grew 6 per cent Q-o-Q to 933,000 tonnes (down 5.2 per cent Y-o-Y) on better North American and European volumes.

The consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) declined 2 per cent Q-o-Q to Rs 5,610 crore despite lower input costs in India and better Novelis performance.

Novelis is expected to witness gradual improvement in per tonne EBITDA over the next few quarters while opening captive coal mines will benefit the India business from FY26.

A focus on high-margin value-added products would also drive growth from FY26.

Auto and aerospace demand will remain strong but inflation and high interest rates are leading to lower speciality volumes.

Global aluminium demand is muted. India demand remains strong with 10 per cent Y-o-Y growth in Q2FY24.

Aluminium prices are expected to remain in the range of $2,100-2,300 in the near term.

Novelis shipments grew 5 per cent Q-o-Q in North America to 390,000 tonnes. It grew 2 per cent Q-o-Q to 256,000 tonnes in Europe and declined 1 per cent Q-o-Q to 175,000 tonnes in Asia.

In South America, the shipments grew 21 per cent Q-o-Q to 144,000 tonnes.

The management believes destocking of beverage cans is largely over and beverage can volumes may improve in H2FY24.

The third quarter (Q3FY24) is seasonally weak for Novelis and volumes will be down due to planned maintenance shutdowns.

The Novelis EBITDA per tonne may improve in Q4FY24 to $525 from the expected range of $450-500 in Q3FY24.

Novelis’ capex was $285 million during Q2FY24 ($333 million in Q1FY24) and capex guidance is on the lower end of the earlier range of $1.5 – $1.8 billion for FY24.

The $2.8 billion Bay Minette greenfield project (600,000 tpa capacity) is on track for FY26 commissioning.

It has long-term commitments for beverage cans and negotiations continued with auto-industry.

Upstream aluminium shipments in India declined 2 per cent Q-o-Q to 334,000 tonnes but downstream volumes grew 15 per cent Q-o-Q.

Upstream EBITDA per tonne was up 9 per cent Q-o-Q at $751 in Q2 versus $691 in Q1.

Downstream, EBITDA per tonne was flat Q-o-Q at $221.

A strong 13 per cent Q-o-Q volume growth in copper at 134,000 tonnes led to segment EBITDA growth of 23 per cent Q-o-Q.

The company maintains a guidance of Rs 500-550 crore quarterly profit run rate in copper.

Management says the company has achieved 50 per cent of its 2025 target of 300MW renewables capacity. Sequentially, coal costs were down 15 per cent.

The India aluminium business is hedged up to 11 per cent of production at $2,755 per tonne for H2FY24.

The company will invest Rs 8,000 crore in two phases for a 2 million tonnes per annum Odisha alumina refinery project and 160MW for a captive power plant.

The alumina expansion will cater to West Asia.

The Clayton plant is to be closed down.

The Q3FY24 cost of production is expected to be flat Q-o-Q.

The coal mix in Q2FY24 stood at 53 per cent FSA (fuel supply agreement), 40 per cent e-auction and 5 per cent own mines with 2 per cent imported.

The Chakla mine is to come online by October 2024. India’s capex for FY24 will be Rs 4,000-4,500 crore.

The 30,000 tonnes Silvassa extrusion unit will start from FY25 and the Sambalpur FRP will be commissioned at the end of calendar 2024.

The stock gained over 1 per cent on results to around Rs 488.

Analysts seem to be positive on the stock with valuations ranging up to Rs 580.

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