Hindalco’s Novelis Reports Loss In Q1, Cuts Capex For FY21
Novelis reported a loss in the first quarter, driven by higher finance costs and depreciation burden.
Hindalco Industries Ltd.’s U.S. subsidiary Novelis Inc. reported a loss in the quarter ended June, driven by higher finance costs and depreciation burden.
The supplier of aluminium to beverage can makers and automotive companies reported a loss of $79 million in the three months through June compared with a profit of $127 million in the year-ago period, according to an exchange filing.
The standalone numbers include the financials of Aleris Corp.—the American aluminium producer that Novelis acquired in April at an enterprise value of around $2.6 billion. The financials, however, exclude Aleris’ plants in Lewisport, U.S.; and Duffel, Belgium; which are set to be divested.
Novelis’ operating profit declined nearly 32% year-on-year to $253 million. The numbers aren’t fully comparable as they include an impact of $34 million on Aleris. Analysts were expecting an Ebitda of $205 million.
The decline in operating profit was driven by lower shipments and an unfavourable product mix but was partially offset by strong cost control and Ebitda contribution from the Aleris business.
Businesses in north and south America contributed to 60% of overall profit.
Operating performance has been in line with estimates and with automotive shipments halving, revenue fell by $72 million, according to Vishal Chandak, analyst at Emkay Global. He said while realisation was higher than estimates, Ebitda per tonne was more or less in line.
Balance Sheet Performance
Net leverage is in line with the company’s guidance during the Aleris acquisition in April to be below 4 times. It had committed to bringing it below 3 times within two years.
Its free cash flow in the ongoing financial year so far stands at negative $151 million compared with negative $94 million in the year-ago period. That was on the back of lower adjusted Ebitda, timing of taxes and exceptional items, which was partially offset by lower capital expenditure.
The company said it expects its free cash flow to improve as a result of cost rationalisation, recovery in demand and curtailment of capex.
For the year, the company cuts its capex by $150 million compared. Against $600 million in FY20, capex for FY21 is likely to be $475-500 million.
Amit Dixit, AVP (research) at Edelweiss Securities, remained optimistic over Hindalco due to its encouraging commentary on value-accretive Aleris integration, capex cut and free cash flow, which is likely to be at FY20 levels. While the brokerage has raised Novelis’ estimated FY21/22 Ebitda by 17/27%, net debt also is expected to rise to Rs 58,900 crore in the ongoing fiscal from Rs 42,600 crore.
Edelweiss raised Hindalco's target price to Rs 205 apiece from Rs 185.
Concall Highlights
Sustainable Ebitda per tonne of $450-475 in a normal year (earlier guidance of $420/tonne) on account of Aleris integration and synergies.
Operating capacity after acquisition to expand to 4 million tonnes per annum, excluding 200 kiloton of expansion currently on.
Adjusted Ebitda of $253 million includes $34 million from the continuing business of Aleris.
Shipments of 747 kiloton include 75 kiloton of aerospace and specialty from Aleris.
Capex cut by a further $150 million. Against $600 million in FY20, capex for FY21 is likely to be $475-500 million.
Better volume outlook for second quarter of 2020-21.
Beverage can facilities continue to operate near pre-Covid-19 levels.
Auto facilities ramping up — at record level in China; near pre-Covid-19 level in August in the U.S.; and a shade below Covid-19 levels in Europe.
Free cash flow is expected to be at a similar level as last year.
Embarked on reduction of $250 million of fixed costs in FY21, of which a third is achieved in the first quarter of the ongoing fiscal.