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Hindalco's subsidiary, Novelis, reported marginally weaker than expected numbers. The impact of higher volumes was offset by pressure on margins. The company reported its best ever Q3 volumes since FY08 on the back of strong performance across all geographies. Novelis reported 10% yoy growth in volumes across all segments. However, margins were under pressure due to excess capacity of cans in US and Asia and higher metal premium in Asia.
The company reported a 4.4% yoy growth in topline to US$2.5bn as the impact of 11.2% yoy increase in volumes was offset by a 6.2% yoy decline in realisations. The decline in blended realisations was accentuated by a decline in product premiums in US and Asia. Product premiums have declined in the above two regions due to excess capacity in can segment. Sales volume of 0.77mn tons was the highest ever Q3 sales volume since the boom of FY08. The jump in overall sales volume was across the four regions. All the geographies reported more than 10% yoy growth in sales volume in Q3 FY14. This was led by change in product mix towards the automotive sector which has been performing quite well in the last two years. Except South America, product premiums have reduced on a yoy basis in the rest. The company plans to change its product mix towards the automotive sector and expects the sector to account for 25% of total sales from 6% in FY13.
The impact of lower product premiums in the can business in North America and higher aluminium spot premiums in Asia led to lower margins for the company. Adjusted EBITDA/ton, which is an important metric for this business model, came in at US$263/ton, lower than our estimate. It was also lower than US$298/ton achieved in Q2 FY14. On a yoy basis this was due to change in lower product premiums, increase in employee costs and less favourable scrap benefits. Margins were further impacted by the cost involved in ramping up new capacities. Adjusted EBIDTA for the quarter stood at US$203mn, 9.7% higher on a yoy basis and 16.4% lower on a qoq basis. Last year's Q3 FY13 numbers were impacted by implementation of ERP systems.
|As a % of net sales||Q3 FY14||Q3 FY13||% yoy||Q2 FY14||% qoq|
|Shipments ('000 tons)||772||694||11.2||765||0.9|
|Revenue (US$ mn)||2,422||2,321||4.4||2,427||(0.2)|
|EBIDTA (US$ mn)||183||173||5.8||219||(16.4)|
|Adjusted EBIDTA (US$ mn)||203||185||9.7||228||(11.0)|
|Adjusted EBIDTA/ton (US$/ton)||263||267||(1.4)||298||(11.8)|
|(US$ mn)||Q3 FY14||Q3 FY13||% yoy||Q2 FY14||% qoq|
|OPM (%)||7.6||7.5||10 bps||9.0||-46 bps|
|Effective tax rate (%)||(10.7)||37.9||37.1|
|Other prov / minority etc||(5)||(10)||(50.0)||(3)||66.7|
|Adj. PAT margin (%)||1.1||0.3||73 bps||1.7||397 bps|
|Extra ordinary items||(13)||(5)||160.0||(18)||(27.8)|