Hindalco dips 7%, hits 8-week low on disappointing Novelis's Q2 numbers

The decline in Ebitda was primarily driven by less favorable metal benefits due to a relatively rapid rise in aluminum scrap prices, unfavorable product mix, and a $25 million impact at Sierre.

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 aluminium 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 stock of the Aditya Birla Group company is trading at its lowest level since September 12, 2024. It has corrected 15 per cent from its 52-week high level of Rs 772 hit on October 3.

 

Novelis' net sales for the second quarter rose by 4.5 per cent to $4,295 million over $4,107 million in the year-ago period, mainly driven by higher average aluminium prices and a one per cent rise in total flat rolled product shipments to 945 kilotonnes (kt).

 

Strong demand for beverage packaging sheet was mostly offset by lower shipments to some specialty end markets as well as lower automotive shipments due primarily to the impact from the flooding-related production interruption at the company’s Sierre, Switzerland, plant during the second quarter this year, Novelis said in a release.

 

Adjusted earnings before interest, tax, depreciation, and amortisation (Ebitda) for the quarter came in at $462 million with Ebitda per tonne at $489 per tonne, down by 6 per cent year-on-year (YoY), 7 per cent quarter-on-quarter (QoQ). Excluding this impact, Adjusted Ebitda stood at $487 million with Ebitda per tonne at $502 per tonne, down 3 per cent YoY, and 5 per cent QoQ.

 

The decline in adjusted Ebitda was primarily driven by less favorable metal benefits due to a relatively rapid increase in aluminum scrap prices, unfavorable product mix, and a $25 million impact at Sierre as a result of the flood. These factors were partially offset by higher beverage packaging shipments, the company said.

 

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.

 

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.