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Novelis cushions Hindalco Q2, rising debt a concern

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MUMBAI: North American subsidiary Novelis provided some cushion to parent Hindalco’s performance in the second quarter where consolidated profit fell 33% and total revenue by 8.8%.

Operating profit decreased by 8% at ₹3,918 crore. Novelis provided the bright spark with EBITDA rising 5% to $374 million, its highest ever as the North American operations performed well.

Volumes were up 3%. On a standalone basis, Hindalco, including Utkal Alumina, suffered a 77% fall in net profit to ₹167 crore including an exceptional loss of ₹31 crore. “Our results in Q2 were largely along expected lines for the type of LME that we have,” said Satish Pai, MD, Hindalco.

“Novelis continues to outperform.

Q2 was another record quarter for them both from the EBITDA point of view and EBITDA per tonne, which is at $448.

The India business is still having the impact of the low LME (London Metal Exchange) prices.

So, quarter-on-quarter, it was a flat quarter,” said Pai. Novelis specialises in making aluminium flat-rolled products for automotive as well as beverage cans. While global aluminium prices dropped roughly 14% year-on-year to $1,761 per tonne, Hindalco’s stock has remained flat over the past six months.

At ₹200, the company’s stock is trading at 5.5 times its FY21 estimated EV by EBIDTA.

The impending acquisition of Aleris would keep the stock under pressure as it will lead to increase in debt which the market may not take positively in the near term. Novelis could gain from higher margins and an increase in demand for beverage cans. The aluminium business, including Utkal Alumina, reported a 38% year-on-year drop in EBIDTA to ₹849 crore, mainly due to lower realisations but partially offset by lower input costs.

Revenue from of aluminium business fell by 10% year-on-year to ₹5526 crore.

Lower realisations eroded the gains from higher aluminium metal and value-added product sales of 1% and 5%, respectively.

Copper business, too, witnessed a drop in revenues and EBIDTA due to weak metal prices.

It fell 6.3% to ₹4449 crore and the EBIDTA fell 36% to ₹263 crore. Hindalco’s net debt for Indian operations (including Utkal) at September end stood at ₹16400 crore and consolidated net debt was at ₹40700 crore.

Net debt to annualised EBIDTA for the Indian operations stood at 4.7 times and consolidated net debt to EBIDTA rose to 2.83 from 2.48 six months ago.

Anything above 4 is considered risky.

Going forward, the Indian operation will increasingly depend on Novelis if the demand for aluminium doesn’t pick up.




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