Hindalco poised for growth with expansion, robust operational results

Consolidated net sales of Hindalco Industries stood at Rs 58,200 crore, up 7 per cent year on year (Y-o-Y) and 2 per cent quarter on quarter (Q-o-Q) in the second quarter of the current financial year (Q2FY25), with better realisations and efficiencies in India.

 

Consolidated operating profit stood at Rs 7,900 crore (up 40 per cent Y-o-Y and up 5 per cent Q-o-Q). Adjusted net profit was Rs 4,300 crore (up 97 per cent Y-o-Y and 25 per cent Q-o-Q).

 

There were one-time exceptional expenses of Rs 510 crore due to flooding at the Novelis Sierre plant. In H1FY25, revenue stood at Rs 1,15,200 crore (up 8 per cent Y-o-Y), operating profit was Rs 15,400 crore (up 36 per cent Y-o-Y), and adjusted net profit stood at Rs 7,700 crore (up 66 per cent Y-o-Y). The net debt-to-operating profit ratio was 1.19 times in Q2FY25 vs 1.24 times in Q1FY25.

 

Upstream aluminium revenue was Rs 9,100 crore in Q2FY25 (up 16 per cent Y-o-Y). Upstream operating profit was Rs 3,700 crore (up 79 per cent Y-o-Y), with lower input costs. Operating profit margin was 41 per cent in Q2FY25 (vs 26.3 per cent in 2QFY24).

 

Downstream revenue stood at Rs 3,200 crore (20 per cent Y-o-Y) due to higher volumes at 103 kilotonnes (kt) (+10 per cent Y-o-Y). Downstream operating profit /tonne was $179 vs $138 in Q1FY25 and $202 in Q2FY24.

 

Copper revenues stood at Rs 13,100 crore (5 per cent Y-o-Y), with higher average copper prices. Operating profit was at an all-time high of Rs 830 crore in Q2FY25, up 27 per cent Y-o-Y. 

 

Novelis shipment volumes stood at 945kt (+1 per cent Y-o-Y/flat Q-o-Q). Growth was led by strong demand for beverage packaging, offset by lower automotive shipments. Volumes were hit by flooding at the Sierre plant. Near-term guidance is withheld due to China policy changes.

 

Novelis’ Q2FY25 revenue was $4.3 billion (5 per cent Y-o-Y/3 per cent Q-o-Q). Adjusted operating profit stood at $462 million (down 5 per cent Y-o-Y/-8 per cent Q-o-Q). The operating profit decline was due to a rapid increase in aluminum scrap prices and an unfavourable product mix. Operating profit per tonne stood at $489 and adjusted net profit was $202 million (down 9 per cent Y-o-Y/-15 per cent Q-o-Q).

 

Management guides that the aluminium cost of production in Q2FY25 was down 1.2 percent Q-o-Q and is expected to increase marginally by 1-1.5 per cent in Q3FY25 due to higher coal auction premiums. The copper division will have an operating profit run rate of Rs 600 crore per quarter.

 

The company has hedged 30 per cent of a commodity at $2517/tonne and an additional 15 per cent is hedged at $2262/tonne with a ceiling price of $2,542/tonne. Bauxite supply disruption in Guinea and Alcova pushed alumina prices higher to $700/tonne. The higher cost will reflect from Q3FY25.

 

The ongoing capex in Novelis would establish it as the global leader in beverage cans and automotive. The management does not see further capex increase.

 

The Aditya FRP project is expected to be commissioned in FY26, increasing downstream capacity to 600kt. An upstream expansion of 180kt powered by renewable energy will take the total upstream capacity to 1.52mtpa. The capex guidance of Rs 6,000 crore for FY25 and Rs 7,000-8,000 crore for FY26 is on track.

 

In copper, 280-300kt copper smelting capacity expansion will take the total upstream capacity to Rs 800kt by FY29. The company has also planned downstream capacity expansion. The aluminium smelter is to be commissioned by October 2027, and the refinery will be on stream by FY28.

 

Domestic auto demand has softened. Indian fiber-reinforced plastic (FRP) demand in FY25 is expected to grow by Rs 7-8 per cent Y-o-Y, led by demand from packaging. Aircraft demand remains strong, but original equipment manufacturers (OEMs) face supply chain issues.

 

 Management anticipates the surge in scrap prices will impact H2FY25's performance for Novelis. Novelis Capex guidance for FY25 will be in the range of $1.8-2.1 billion. Overall, $3.4 billion capex outflow is expected over FY25-26E.

 

Overall, positive market trends and strong operational performance, coupled with capacity expansions, leave room for future optimism.