 "Alcoa's strong results to reflect on Indian peers")
New York-based aluminium maker Alcoa Inc’s better-than-expected performance for the June quarter saw the stocks of Hindalco, Vedanta and National Aluminium (Nalco) soar 5-13 per cent on Tuesday, with all three hitting their 52-week highs. The results instil confidence that the Indian aluminium makers, especially Hindalco, which has a US subsidiary (Novelis), will also report improved performance.
Analysts at Emkay Global expect the improvement in Novelis’ performance to continue. Apart from strong results, Alcoa’s expectation of a one-four per cent production growth in the auto segment is encouraging and it indicates this segment will drive growth for Novelis, too. Analysts at Kotak Institutional Equities recently said they like the improving earnings trajectory of Novelis aided by higher automotive product demand and they factor in a growth of seven per cent in earnings before interest, taxes, depreciation and amortisation, or Ebitda (adjusted for one-offs), to $1.03 billion in FY17.
What adds to the confidence is that Alcoa has guided for a positive outlook for aluminium, which means that producers of this white metal can look forward to better realisation and profitability going ahead.
The stocks of Hindalco, Vedanta and Nalco, which had fallen sharply till February, have recovered thereafter on rebound in aluminium prices. On the London Metal Exchange (LME), aluminium prices have improved from the lows of $1,450 a tonne in January to $1,650 a tonne now. While the average per-tonne aluminium prices on the LME for the June quarter is down 11 per cent year-on-year at $1,570, on a sequential basis (over the March quarter) it is up four per cent. Similarly, alumina prices at $253 are up 15 per cent sequentially, but down 25 per cent year-on-year. Given the improving outlook, one can expect further gains in aluminium and alumina prices.
Meanwhile, for the June quarter, analysts are already estimating good performance by the domestic companies. Hindalco, though, might see its performance get partly impacted by maintenance-related shutdown in copper, while lower production at Hindustan Zinc (according to mine development plan) and Cairn India might reflect on the consolidated numbers of Vedanta. Nevertheless, aluminium segment is likely to provide a boost. Analysts at Motilal Oswal Securities estimate Hindalco’s consolidated Ebitda would increase 18 per cent year-on-year (y-o-y) to Rs 2,700 crore, led by Novelis and strong margins in primary aluminium business. Excluding Hindustan Zinc and Cairn, the brokerage estimates Vedanta’s Ebitda to increase 15 per cent and 50 per cent sequentially and y-o-y, respectively. Nalco’s Ebitda, too, is estimated to increase 10 per cent y-o-y to Rs 246 crore, due to lower costs and the rupee depreciation of about six per cent.
