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Hindalco’s U.S. Arm Posts Record High Operating Profit In Q2, Raises Guidance

Analysts are now bullish Hindalco Industries, ahead of its quarterly results due Nov. 10.

A man prepares to take away aluminum strips purchased from a Hindalco dealer in Delhi. (Photographer: Amit Bhargava/Bloomberg News)
A man prepares to take away aluminum strips purchased from a Hindalco dealer in Delhi. (Photographer: Amit Bhargava/Bloomberg News)

Novelis Corp. posted a record high operating profit in the quarter ended September, aided by targeted cost control initiatives and favourable metal costs. That may have prompted a few analysts to maintain their bullish investment stance on parent Hindalco Industries Ltd.

The U.S. subsidiary of billionaire Kumar Managalam Birla’s flagship aluminium maker posted a 22% year-on-year rise in Ebitda to $455 million in the July-September period, according to a company statement.

Besides, a good demand momentum in most segments and full capacity utilisation across plants led the company to raise its medium-term Ebitda per tonne guidance to $480-500 from from $450-475 after the quarter ended June. On a consolidated basis, Novelis achieved a record Ebitda per tonne of $493 during the reported quarter.

Novelis, however, suffered a net loss of $37 million compared with a net profit of $123 million a year earlier on account of an exceptional loss $170 million (net of tax) booked on forced divestitures of Aleris Corp. business.

In October, Novelis sold Aleris’ aluminium production plant in Duffel, Belgium, to Liberty House for $370 million (€310 million). But Novelis only received $250 million (€210 million) in cash, while the balance is under arbitration. Excluding tax-effected special items, the company’s net income was $158 million, down 1% over the year earlier.

Opinion
Motilal Oswal: Hindalco’s Novelis’ Q2 Margin Surprises Positively

Record Shipments

Novelis posted a record shipment of 923 kilotonnes, up 11% year-on-year and 19% over the preceding quarter, in the three months ended September. The recovery was the most pronounced in the automotive market as shipments doubled over the first quarter, led by North America. The Asia market saw record automotive shipments for the second straight quarter.

In South America, an increase in at-home beverage consumption significantly shifted package mix towards aluminum cans, also resulting in record shipments in this segment.

Hindalco is set to announce its results for the quarter ended September on Nov. 10.

Here’s what brokerages have to say...

Jefferies on Hindalco

  • Maintains ‘buy’ with a target price of Rs 235 apiece.
  • Big beat at Novelis, Ebitda per tonne expanded to highest in a decade.
  • Good demand momentum across autos, beverage cans and building and construction.
  • Strong business outlook; raised margin guidance.
  • Realisations from sale of Aleris’ auto assets a tad disappointing.

Emkay Global on Hindalco

  • Maintains ‘buy’ with a target price of Rs 225 apiece.
  • Strong second quarter for Novelis; all round beat on consensus estimates.
  • Lewisport divestment at a distress valuation due to Department of Justice deadline.
  • Acquisition cost of Aleris has become expensive due to low realisation from divestitures.
  • Capacity addition road map to 4.5 million tonnes.
  • Novelis will be the key driver to Hindalco's profitability.

Shares of Hindalco cooled off after gaining as much as 3.1% in early trade on Tuesday. The stock is currently trading 0.4% higher, and is up for the fourth straight day.