Hindalco: Q1 performance in line with expectations, outlook positive

In FY25, the management expects capex of Rs 5,500-6,000 crore for India operations and capex of $1.4-2.1 billion for Novelis

The consolidated performance of base metals major Hindalco has matched expectations. For the April-June quarter (Q1) of the current financial year (FY25), the global base metals producer’s consolidated net sales stood at Rs 57,000 crore, up 8 per cent year-on-year (Y-o-Y) and 2 per cent quarter-on-quarter (Q-o-Q)). Consolidated Ebitda was Rs 7,500 crore (up 31 per cent Y-o-Y and 12 per cent Q-o-Q), while adjusted PAT was at Rs 3,400 crore (up 38 per cent Y-o-Y and up 7 per cent Q-o-Q). The net debt-to-Ebitda ratio stood at 1.24x compared to 1.73x in Q1FY24.

The revenue from upstream Aluminium operations was Rs 8,800 crore (gain of 10 per cent Y-o-Y). Aluminium upstream Ebitda stood at Rs 3,500 crore (up 81 per cent Y-o-Y), driven by lower input costs. Upstream Ebitda margins were held at 40 per cent. Downstream revenue was Rs 2,900 crore, up 18 per cent Y-o-Y. Downstream sales volumes reached 96,000 tonnes (up 19 per cent Y-o-Y). The downstream Ebitda per tonne was $138 compared to $202 in Q1FY24.

In the copper business, revenue was Rs 13,300 crore (up 16 per cent Y-o-Y), while Ebitda was at an all-time high of Rs 800 crore, up 52 per cent Y-o-Y, backed by higher average copper prices. Copper metal sales stood at 119,000 tonnes (flat Y-o-Y). Sales of CCR (continuous cast rod) were 100,000 tonnes, up 2 per cent Y-o-Y.

In its US-based subsidiary Novelis, shipments volume stood at 951,000 tonnes (up 8 per cent Y-o-Y and flat Q-o-Q). Growth was led by demand for beverage packaging sheets. Revenue stood at $4.2 billion (up 2 per cent Y-o-Y and up 3 per cent Q-o-Q), due to higher aluminium prices and higher total shipments. The Adjusted Ebitda was at $500 million (up 19 per cent Y-o-Y and down 3 per cent Q-o-Q). Ebitda per tonne was $526. Adjusted PAT stood at $237 million (up 43 per cent Y-o-Y and down 3 per cent Q-o-Q), led by lower-than-expected depreciation and finance costs. Novelis reported an exceptional item of $86 million, which included initial charges associated with flooding at the Sierre plant in Switzerland as well as higher restructuring and unfavourable metal price lags.

The capex stood at $348 million. Novelis has a strong liquidity position of $2.2 billion, with cash and cash equivalents of $886 million. Net debt stands at $4.6 billion, with a net debt-to-adjusted Ebitda ratio of 2.4x. Management expects coal costs to remain flat Q-o-Q in Q2FY25. There’s a focus on downstream expansions at Silvassa Extrusion and Aditya FRP projects, which are to be commissioned by FY26, taking total downstream capacity to 600,000 tonnes.

The company has planned some large upstream expansion projects with expected capex of Rs 6,000-8,000 crore each at Alumina refinery expansion in Odisha with an expected timeline of 20-24 months; copper smelter (under evaluation, to be commissioned in 36 months); and FRP-2 smelter of 180,000 tonnes at Aditya. The company has achieved 173 MW of renewables capacity in Q1FY25 and another 100 MW Hybrid (with storage) is to be commissioned in H1CY25. The renewables target is 300 MW.

In FY25, the management expects a capex of Rs 5,500-6,000 crore for India operations and a capex of $1.4-2.1 billion for Novelis. It indicated that post-flood restoration is underway at Novelis’s Sierre plant and production will restart by Q2FY25 end. The net impact is $30 million to adjusted Ebitda. Novelis reiterated its near-term Ebitda per tonne target of $525.

The consolidated performance was in line, and Novelis also had a decent result. The cost of aluminium production is expected to stay under control, which would maintain margins. Novelis hopes for margin improvement across FY25 and FY26. The ongoing capex in Novelis would establish Hindalco as global leader in beverage cans and automotive FRP segments. There will be no further changes in capex cost estimates.

With respect to the Supreme Court judgment, Anand Rathi analysts wrote in a report on Wednesday that a slight increase in mining cost is likely ahead, however, the company does not anticipate significantly increased liability from the recent judgement on royalty. Top executives in a post-earnings call on Tuesday noted that the company did not have any retrospective exposure.

Overall, analysts are net-positive on the stock, which closed marginally higher at Rs 621.55 on the BSE on Wednesday, a day when the BSE Metal Index fell by 1.51 per cent with 7 out of 11 stocks closing in the red.