Hindalco in focus as subsidiary Novelis achieves guided EBITDA earlier than projected

Hindalco share price, Novelis Q2 results: Shares of Hindalco Industries, India’s leading aluminium manufacturing company, were on the investors’ radar on Wednesday, November 7, a day after the company’s subsidiary Novelis released its financial results for the second quarter of the current fiscal. After opening over a per cent higher, the stock turned flat in the early trade. Last seen, the stock was trading 0.03 per cent higher at Rs 483.45 on the BSE.

Although the company reported a decline in net profit and sales, the company has achieved EBITDA, or earnings before interest, taxes, depreciation, and amortisation, guidance earlier than projected.

The company’s net income attributable to its common shareholders came in at $157 million, which was down 14 per cent YoY, while net income excluding special items was $180 million, down 11 per cent YoY. Adjusted EBITDA, or earnings before interest, taxes, depreciation, and amortisation, stood at $484 million, down 4 per cent YoY; however, adjusted EBITDA per tonne shipped rose 1 per cent YoY to $519. Novelis had guided EBITDA per tonne at $500 by March 2024. Hence, it achieved the guided EBITDA sooner than projected. 

Further, its rolled product shipments stood at 933 kilotonnes, down 5 per cent YoY.

“We are pleased to see another quarter of sequential improvement in adjusted EBITDA, driven by initial demand recovery in our core beverage packaging sheet end market as industry supply chain destocking activity is largely behind us,” said Steve Fisher, president and CEO, of Novelis Inc.

The CEO added, “We delivered a solid second quarter, demonstrating the resilience of our business on account of our diverse customer base across premium end markets, our leadership position in aluminium recycling, a solid balance sheet, and the scale and efficiency of our global operations. The business will only be further strengthened in the coming years as we complete strategic investments underway in new rolling and recycling capacity.”

What brokerages say about Hindalco

Global brokerages have maintained their bullish stance on the flagship company of the Aditya Birla Group. CLSA, while maintaining a ‘buy’ rating on the stock with a target price of Rs 575, said that Novelis continued to report a gradual improvement in profitability and that the company is on track to achieve its guided EBITDA/tonne of $525 by Q4. The brokerage added that Novelis’ adjusted EBITDA per tonne shipped at $519, was above expectations. CLSA also notes that the company has indicated a softer Q3 but maintained Q4 guidance. 

Similarly, Macquarie has also maintained an ‘outperform’ rating on the stock with a target price of Rs 562. The brokerage says that Hindalco remains its preferred play in the non-ferrous space. Jefferies has also maintained a ‘buy’ call on the stock with a target price of Rs 575.

Among domestic brokerages, Motilal Oswal Financial Services notes that the volume growth across geographies is expected to remain stable going ahead and Bay Minette expansion is likely to be completed as scheduled. Hindalco has secured long-term contracts for supplying beverage cans from the Bay Minette facility, which gives future revenue visibility, it said in a report dated November 7. 

“We believe EBITDA/t improvement in Novelis is a positive development and EBITDA/t could be more than USD500 ahead on a sustainable basis. We have increased our FY24E/FY25E EBITDA estimate by 4.8 per cent / 4.2 per cent. We reiterate our BUY rating on Hindalco with a SoTP-based TP of Rs 580. The stock is trading at 5.6x FY25E EV/EBITDA and 1.2x FY25E P/B,” the report adds.

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