Order book visibility signaling fresh aluminium, copper demand: Hindalco

Company reports higher-than-expected Q3 PAT at Rs 1,877 crore, up 77% YoY

With order book visibility getting strong, Hindalco Industries is of the view that the demand bounce back to pre-Covid levels is sustainable and is not pent-up in nature across sectors.

“The order flow coming in is fresh three-month and six-month forward looking orders and none are old orders that are being revived. So clearly, the signs are of fresh demand coming up. These signs are across segments—in aluminium as well as in copper,” Satish Pai, managing director of Hindalco Industries told Business Standard.

Hindalco Industries today reported higher-than-expected consolidated net profit of Rs 1,877 crore in the December quarter, up 77 per cent from same period last year on the back of increased revenue as business bounced back to pre-Covid levels.

“We have to remember that though we have come to pre-Covid levels, we have started off on a lower base. So to that extent we have had to start from where we were a year ago. We haven’t exceeded that,” Pai explained.

 

The company’s topline in the period under review stood at Rs 34,958 crore, up 20 per cent from same period last year with Novelis contributing the highest of close to Rs 23,960 crore to the total.

As per Bloomberg estimates, the company’s consolidated net sales was seen at Rs 19,671 crore in the December quarter, while the bottomline was expected to be at Rs 983 crore.

The company's consolidated earnings before interest, taxes, depreciation and ammortisation (EBITDA) stood at Rs 5,242 crore the quarter gone by, up 40 per cent from same period last year and up 12 per cent sequentially.

"All-time high overall shipments by Novelis stood at 933,000 tonne, up 17 per cent on year-on-year (YoY) basis with all-time high Novelis adjusted EBITDA at $501 million, up 46 per cent from same period last year," said the Aditya Birla Group company in its release.

Meanwhile, the company's aluminium India business EBITDA stood at Rs 1,323 crore, up 27 per cent YoY and up 24 per cent quarter-on-quarter (QoQ).

“Nearly 80 per cent of the company’s consolidated EBITDA is linked with LME (London Metal Exchange) and hence it looks sustainable and going ahead in FY22, these earnings can be maintained,” said Pai.

The EBITDA margin in aluminium India business at 25 per cent, up 593 basis points YoY.

"Along with market performance, we have strengthened our balance sheet which shows in a significant improvement in the consolidated net debt to EBITDA ratio. The inclusion of the Aleris business has positively impacted the overall top line and EBITDA, with realisation of synergies at $54 million on a run-rate basis in Q3," said Pai.

The company's consolidated net debt/EBITDA stood at 3.09x as on December 31, 2020 as against 3.83x as of June 30, 2020.

“It was the Novelis debt which we have pre-paid and has resulted in lower debt/EBITDA. Our India business net debt remains largely flat,” informed Pai.

 

The company’s consolidated gross debt stood at Rs 77,800 crore of which Rs 53,800 crore belonged to Novelis as on December 31, 2020.

With cash generation on track due to demand revival, Hindalco Industries is amid chalking out capital allocation strategy where cash generated by the business would be divided between the shareholders, investment in growth capex and utilisation in lowering of debt level.

“We will come back with the plan in a couple of weeks as to what percentage of the capital will go where. We are amid chalking out the strategy,” informed Pai.

During the quarter, the company also managed to pay off $500 million of the total $1.1 billion bridge loan it had taken during Aleris acquisition. Going ahead, in the final quarter of FY21, the company aims to pay off the balance $600 million bridge loan and thus will have repaid the entire amount by April of FY22.

For 2021, the treatment charges/refining charges have been set lower by 4 per cent from 2020 at 15.2 cents informed Pai which will lead to copper business of Rs 200-250 crore in FY22.