Shares of Hindalco Industries stayed flat in the opening trade, ahead of its Q2 earnings. Its arm Novelis exceeded its operating profit target sooner than expected. The Hindalco stock was trading at Rs 481.7 on the BSE, down 0.2 percent from its previous close, while the benchmark Sensex fell 0.04 percent to 64,919 points.
Novelis exceeded its EBITDA target, hitting $519 per tonne two quarters ahead of schedule due to sharp increase in volumes. This subsidiary contributes over 70 percent of Hindalco's EBITDA. All eyes are on the earnings report of Hindalco Industries, due on November 10.
Kotak Securities has upgraded Novelis EBITDA by 7 percent/5 percent for FY2024/25 on higher margins on the basis of recent performance and improvement in end-market segments.
In the July-September quarter, Novelis saw a 14 percent drop in net sales and net profit from continuing operations, totalling $4.1 billion and $157 million. The on-year decline in revenue was due to lower FRP dispatches; lower metal prices which was partially offset by higher automotive shipments, favourable product mix, and increased product pricing. EBITDA also fell slightly to $484 million from $506 million last year, but up from $421 million in the previous quarter.
The company's volumes improved by 6 percent due to the end of destocking, driven by operational efficiencies and better metal prices. Novelis remains cautious about the specialty segment due to the uncertain macro environment.
"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", said Motilal Oswal in its latest note.
"We believe EBITDA-per-tonne improvement in Novelis is a positive development and EBITDA/tonne could be more than $500 ahead on a sustainable basis. We have increased our FY24/FY25 EBITDA estimate by 4.8 percent/4.2 percent," Motilal Oswal said.
The company management reported that the destocking issue in the beverage can segment has resolved, and demand is returning to normal. Weak demand persists in the building construction sector due to high mortgage rates. Auto and aerospace sectors continue to experience strong demand in the short term, with a positive outlook for the medium to long term.
In the third quarter of FY24, they expect the per-tonne EBITDA to be between $450 and $500 due to seasonal factors and planned shutdowns. However, they maintain a margin guidance of $525 per tonne in the fourth quarter of FY24 as volumes normalise.
"We estimate volume of 3.7 million tonnes, -3 percent YoY, in FY2024 (-7 percent in 1HFY24). We revise our EBITDA estimates upwards by 7 percent/5 percent to $501/520/ton for FY2024/25, factoring the strong performance in 2QFY24," Kotak Institutional Equities said in its latest note.
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