Shares of Hindalco Industries Ltd fell 1.5 percent on Thursday after the company reported March quarter earnings. At 12.27pm, the stock was trading at Rs 401 on BSE, down 1.5 percent from its previous close.
The firm reported a net consolidated profit for the quarter ended March at Rs 2,411 crore, down 37 percent from Rs 3,860 crore in the same quarter a year ago. Revenue was at Rs 55,857 crore, rising only 0.16 percent from Rs 55,764 crore last year.
Consolidated EBITDA of the company was at Rs 5,818 crore, down 23 percent year on year (YoY). Its US-based subsidiary Novelis’ net Income was at $175 million, down 7 percent YoY. Novelis’ revenue in Q4 FY23 stood at $4.4 billion (vs $4.8 billion), down 8 percent YoY, impacted by lower average aluminium prices and subdued sales volume YoY.
What analysts feel
"The quarterly performance was largely in line, with a marginal miss in margin. Management has not guided for any CoP reduction and as the copper unit, which contributes substantially to domestic operations, is currently undergoing a scheduled maintenance shutdown until mid-June ’23, which will impact margin to some extent. We have slightly lowered our FY24 consolidated EBITDA/APAT estimates by 2%-5%," said Motilal Oswal in its note to investors. The brokerage house has maintained buy rating and given a target price of Rs 510 a share.
The fourth quarter of fiscal year 2023 saw Novelis' EBITDA performing below analysts expectations primarily due to a decline in volumes. However, there was some improvement in margins compared to the previous quarter. The beverage cans and specialty segments, which constitute 80% of the company's volumes, continued to face challenges from channel destocking and a weak macro environment. As a result, the company has decided to postpone providing volume guidance for the fiscal year 2024, due to uncertainties in the near term. The management anticipates a return to normalised margins by the fourth quarter of fiscal year 2024, while the next 2-3 quarters are expected to be characterised by volatility.
"Hindalco India EBITDA was in line with our estimates, with sequential margin expansion at the aluminum and copper divisions. LME Aluminum prices remain under pressure due to weak demand and declining cost support, whereas Hindalco guided for stable costs in the near term. Novelis continues to face demand headwinds in beverage cans and specialty segments; we expect margins to remain choppy in the near term", Kotak report said. The brokerage firm has maintained an add rating on the stock.
Long-term prospects
"We have trimmed our EBITDA estimate by 2.3%-0.3% for FY2024/25E, mainly led by lower margins in the aluminum business. Our FV remains unchanged at Rs 455 at the unchanged 6X EV/EBITDA March 2025E. Stock trades at an inexpensive 5.4X EV/EBITDA FY2025E, but the uncertain outlook of Novelis earnings should keep the stock under pressure in the near term," Kotak report added.
According to Motilal the stock has already factored in the challenges it faces, including the economic slowdown in China, the effects of high interest rates, and increased input costs. On the positive side, they expect strong demand in India, improved capacity utilisation, increased investments in infrastructure, a positive business sentiment, and a moderation in commodity prices, all of which should support the company's performance going forward.
Motilal maintains confidence in the company's long-term growth prospects and suggests that any decline in the stock following the fourth quarter results should be seen as a buying opportunity.
