Hindalco tanks 15% post Novelis December quarter results

Novelis has significantly increased its planned capex spends for its green field expansion at Bay Minette plant from $2.7-2.8 billion to $4.1 billion.

Shares of Hindalco Industries tanked 15 per cent to Rs 497.50 on the National Stock Exchange (NSE) in Tuesday's intra-day trade on heavy volumes amid concerns of significant escalation in projected cost for Bay Minette plant. Analysts believe that this would result in lower IRR (Internal Rate of Return).

“Fiscal year-to-date 2024 capital expenditures total $960 million, reflects the planned increase in strategic investments in new rolling and recycling capacity under construction,” Novelis, a subsidiary of Hindalco Industries, said.

At 09:51 am; Hindalco was trading 14 per cent lower at Rs 502.10, as compared to 0.01 per cent decline in the Nifty 50. The average trading volumes on the counter jumped 1.5 times. A combined 12.8 million equity shares changed hands on the NSE and BSE.

Meanwhile, Novelis recorded a 6 per cent year-on-year (YoY) decrease in net sales to $3.9 billion for the third quarter of the fiscal year 2024 (Q3FY24), largely on account of lower volumes coupled with lower realizations. The company recorded a net income attributable to common shareholders of $121 million for Q3FY24, growing 10-fold over $12 million in the year-ago period.

Adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) decreased 6.2 per cent sequentially to $454 million in Q3FY24 vs $484 million in Q2FY24. The underlying decrease in Adj. EBITDA is primarily due to adverse impact of lower realisations and volumes offset by lower input costs.

However, on a YoY basis, adjusted EBITDA increased 33 per cent. This significant improvement was primarily driven by favorable metal benefit from recycling, higher pricing, and lower operating costs than the prior year, which was heavily impacted by high inflation and geopolitical instability, the company said.

Meanwhile, the company significantly increased its planned capex spends for its green field expansion at Bay Minette plant from $2.7-2.8 billion to $4.1 billion of which ~$750 million to be spent by March 2024 and balance of ~$3.4 billion to be spend during FY25-26.

Novelis reported FCF outflow of $517 million in 9MY24. Overall Company plans to spend $1.4-1.6 billion during FY24. The company is also in the process of commissioning its recycling facility in Guthrie, US and Ulsan, South Korea by FY25.

Significant escalation in projected cost for Bay Minette plant is likely to result in lower IRR (Internal Rate of Return). However, the earnings trajectory is likely to benefit tracking (a) plant commissioning (b) increased recycling (c) evenly spread capex (due to delay in Bay Minette plant commissioning) resulting in higher shipments and margins keeping its journey of sustainable, analysts at JM Financial Institutional Securities said in result update.

Meanwhile, the board of directors of Hindalco is scheduled to meet today i.e. February 13, 2024 to consider and approve Q3FY24 results.