Hindalco shares plummet 7% as U.S.-based arm Novelis reports weak Q2

Shares of Hindalco Industries, a flagship company of the Aditya Birla Group, tumbled over 7% in early trade on Thursday after its U.S.-based subsidiary, Novelis, reported weak earnings in the September quarter. The sentiment was further dented after the aluminum company withdrew its EBITDA per tonne guidance over concerns surrounding ‘accelerating’ tightening of scrap spreads with liberalisation of scrap imports by China.

Snapping two sessions losing streak, Hindalco shares opened lower at ₹682.95, down 3.6% over the previous closing price of ₹708.25 on the BSE. In the past two days, the counter rose nearly 5%.

In the first hour of trade so far, the Aditya Birla Group stock declined as much as 7.1% to ₹657.55 crore, while the market capitalisation slipped to ₹1.48 lakh crore. The stock touched its 52-week high of ₹772 on October 3, 2024, rebounding from its 52-week low of ₹478.50 hit on November 8, 2023.

In the last one year, Hindalco shares have risen 36%, while the metal and mining heavyweight added 8% in the calendar year 2024. The largecap stock has gained 6% in six months, whereas it has fallen nearly 10% in a month.

In a post market release on Wednesday, the aluminium and copper manufacturing company said that its wholly-owned subsidiary, Novelis, reported weak operational performance and lower net profit in the quarter ended September 30, 2024.

Novelis Inc posted an 18% drop in net income to $128 million as compared to the same period last year due to an impact of $61 million pertaining to flooding at its Switzerland facility, Sierre. “The current year period includes $61 million in charges associated with the production interruptions at Sierre, as well as higher restructuring and impairment expense and lower operating performance, partially offset by a favorable change in metal price lag and unrealized derivatives year-over-year,” Hindalco said in the exchange filing.

Net sales for the second quarter of fiscal year 2025 increased 5% versus the prior year period to $4.3 billion, mainly driven by higher average aluminum prices and a 1% increase in total flat rolled product shipments to 945 kilo tonnes. “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 our Sierre, Switzerland, plant during the second quarter this year,” the release noted.

“Our global footprint allowed us to achieve record beverage packaging shipments in the quarter and also mitigate the impact to customers from the flooding-related outage at Sierre," said Steve Fisher, president and CEO, Novelis Inc.

According to domestic brokerages, Novelis’ net debt ($4.7 billion in Q2 FY25) to increase this year due to capex commitments. “Given ongoing capex of $4.9 billion, we reckon capex will peak in FY26, pushing up debt. We expect net debt to rise to $5.5bn in FY26E (net debt/EBITDA of 2.7x). Benefits of the $4.1bn Bay Minette project (commissioning by end-FY27E) shall accrue FY28 onwards,” Nuvama says in a report. The agency has maintained HOLD’ rating on its parent, Hindalco, with a target price of ₹679 per share. 

Analysts at Motilal Oswal also believe that capex guidance for FY25 will be in the range of $1.8-2.1bn and about 60-65% of the capex would go for the Bay Minette plant. Overall $3.4bn capex outflow is expected over FY25-26E. The total capex for H1 FY25 stood at $7.17 billion, primarily attributed to the new rolling and recycling capacity. The brokerage has maintained a ‘Buy’ call on Hindalco.

Another brokerage Emkay in its report says that the withdrawal of EBITDA/t guidance will create a near-term overhang for the stock. It has downgraded Hindalco to ‘SELL’ from ‘Reduce’ following a disappointing outlook from Novelis. “We cut Novelis’s EBITDA/t estimate to $477 from $501 (previous guidance of $525) for FY25. We think the pain on scrap spreads could endure for 2-4 quarters at least.”

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