Novelis Posts 62% Profit Growth In Fourth Quarter, Forms Joint Venture With Kobe Steel

Hindalco’s wholly owned subsidiary Novelis Inc. reported a profit growth in the fourth quarter of fiscal 2017 driven by higher shipments of premium products.

Net profit of the world's largest aluminum recycler grew 62 percent to $47 million compared to a year ago, according to a media statement. Net sales increased 9 percent to $2.6 billion in the same period.

Operating income after adjusting for a metal price lag stood at $292 million, up 5 percent over the same quarter last year. Novelis factors in a metal price lag in its earnings – the difference between prices at the time of manufacture and eventual sale of the product.

Shipments of rolled aluminum products remained flat year-on-year at 789 kilotonnes. However, the growth in sales was due to higher average aluminum prices and increased shipments of premium products. Automotive shipments rose 26 percent as a result of a ramp up to support Ford's F-Series Super Duty line of trucks in North America and the popularity of Jaguar Land Rover's aluminum intensive vehicles in Europe.

Joint Venture With Kobe Steel

Novelis also entered into a joint venture with Japan's Kobe Steel Ltd., it said in a separate media statement.

The joint venture will be named Ulsan Aluminium and will be formed by Novelis selling 50 percent of its ownership stake in its Ulsan facility in South Korea to Kobe for $315 million. The two companies will jointly operate the Ulsan facility, but each company will remain responsible for its metal supply. The transaction is expected to close by September this year.

Novelis aims to improve utilisation at its Ulsan facility, which focuses on automotive and specialty aluminum sheets for Asian markets. The proceeds from the transaction will also be used to reduce Novelis’ net debt.

The company is deleveraging at a faster rate which should drive upgrades, brokerage Motilal Oswal said in a note.