Hindalco hits records in June quarter on rising commodity prices

Metals cycle is expec­ted to stay strong and aid the company, but prices may top out this fiscal

Non-ferrous metals major Hindalco beat expectations with its June quarter (Q1FY22) results. At the consolidated level, it reported Ebitda (earnings before interest, taxes, depreciation, and amortisation) of Rs 6,790 crore, up 16 per cent quarter-on-quarter (QoQ), and up 188 per cent year-on-year (YoY).
 
Consolidated profit after tax (PAT) was Rs 2,787 crore, up 493 per cent YoY and 45 per cent QoQ. Ebitda margins for India reached a 13-year high of 37.5 per cent. Revenue of Rs 41,358 crore was ahead of Rs 25,283 crore (YoY) and Rs 40,507 crore (QoQ). All the three parameters were the highest-ever since the Q1FY19 (since consolidated data is available).
 
Novelis’ quarterly adjusted Ebitda was a record $555 million, up 119 per cent YoY and 10 per cent QoQ. Its net income from continuing operations was $303 million, up 597 per cent YoY and 1,082 per cent QoQ. India operations also generated record Ebitda and PAT.
 
The balance sheet strengthened with debt to Ebitda ratio improving to 2.36x from a June 2020 high of 3.8x and ratings agencies raised the credit ratings for both Novelis and Hindalco. Gross debt is down by Rs 16,345 crore and net debt is down by Rs 10,389 crore.
 
Rising global metals prices too contributed substantially to the performance. Internationally, aluminium prices are at multi-year highs, and copper prices are also trending close to multi-year highs. Per tonne realisations from both industrial metals were higher in the quarter, apart from higher shipments (especially in copper and in aluminium value-added products) and a higher-value product mix. The Utkal Alumina capacity expansion should go into commercial production in Q2 and the company is investing in a downstream flat rolled project in Odisha, which will, however, go into production only in FY25.

Going forward, demand for both metals is expected to remain strong both domestically and globally. However, the low-base effect of Q1 will moderate. Nevertheless, the rest of the year should see double-digit expansion in demand. The main driver may be a recovery in the global automobile industry.
 
Causes for concern would, of course, include the continuing pandemic. Apart from that, rising fuel prices may impact costs, since the industrial processes involved in handling aluminium and copper are all extremely power-intensive, end-to-end. If growth stalls, especially global, the bullish metals cycle would be impacted, but that doesn’t seem like a likely situation at the moment. Rising inflation in general could impact demand in India.
 
The metals cycle is expected to stay strong for the financial year and probably through calendar 2022. Given that Hindalco is a pure play commodity, it could continue to ride that wave. But prices may top out sometime this fiscal, leading to a possible plateauing in profits. The stock has returned around 150 per cent in the last year, comfortably beating the benchmark indices. It has returned 15 per cent in the last month.