Aluminium, Copper twin triggers for Hindalco, Novelis a key positive

After a strong show by Hindalco’s US subsidiary Novelis, its domestic operations too put up a robust performance. Though revenues from operations grew just 2.4 per cent year-on-year (sequentially flat), it was the smart jump in profitability of aluminium segment that aided a sharp 17.5 per cent y-o-y jump in operating profits. 

The good performance by the aluminium segment was on account of better realisations and stable plant operations, helping profits grow 35 per cent y-o-y, while the same on a sequential basis was 21 per cent. 

While the 18 per cent rise in aluminium prices on the London Metal Exchange (LME) over the year-ago period also helped,  efficient operations aided per tonne profitability. 

As focus on downstream products in both aluminium and copper is expected to reinforce margins, analysts say Hindalco’s integrated operations give it an edge over others in the current high cost environment.

The copper segment, too, did well, maintaining its profitability helped by improving by-product realisations and raising continuous cast rod (CCR) production. As copper cathode production normalises (after maintenance shutdown at one smelter), the ramp-up at CCR-3 facility will provide impetus to the copper segment’s growth. 

Meanwhile operational performance and lower interest costs helped the bottom line, offsetting the impact of input costs, mainly from coal and furnace oil. 

Interest expense was down 23 per cent, which the company attributed mainly to pricing of long-term project loans and re-payments made during the last year. The company’s standalone profits more than doubled to Rs 7 billion.

Earlier, Novelis had reported its highest ever quarterly adjusted operating profit of $417 per tonne in the June quarter, compared to $368 in the year-ago period. 

Higher automotive sheet shipments, operating efficiencies, recycled content and better cost management continues to help Novelis, now in the midst of expansion. 

Investments in automotive finishing capacities in Kentucky, US and Changzhou, China are on schedule. Plans to acquire US-based Aleris through Novelis will expand value-added capacities and help Novelis enter new segments such as aerospace products. 

Analysts at Edelweiss Research are upbeat on Novelis due to its focus on the margin-accretive auto and specialty segments that should generate strong cash flows. Though near-term volatility in base metal prices on trade war concerns may keep stock prices under check, analysts maintain their positive stance on the stock with a one-year view.