Q1FY24 Review: Hindalco: Healthy Q1; weak LME Al a concern

9 Aug 2023 , 11:30 AM

Hindalco’s Q1 Ebitda benefitted from healthy volumes for Aluminium (Al) and Copper (Cu) in India and 3% lower CoP for Al. Novelis saw very weak volume, but Ebitda beat on better mix and pricing uptick. At Novelis, the improving confidence on quick return to US$525/t Ebitda is a positive, but weak outlook for LME Al a key concern. Analysts of IIFL Capital Services cut estimates by 3% for FY25 amid lower LME Al assumption. Retain BUY. 

Healthy volumes and lower CoP support India Ebitda: 

Hindalco’s India business Ebitda at Rs24.7bn was down 4% QoQ, despite 9% lower realisation for the Al business. This was supported by healthy 5.6% QoQ growth in volume to 341kt, and 3% lower CoP. Mgmt expects further 3% QoQ CoP fall, led by better linkage coal availability. At US$220/t vs US$150/t QoQ, downstream Al Ebitda was aided by better mix despite the 10% QoQ drop in volume to 81kt. Copper business reported healthy 118kt of sales (up 1% QoQ) with CCR sales of 98kt. Planned shutdown resulted in 11% QoQ drop in Ebitda to Rs5.3bn. 

Novelis sees Ebitda beat, despite very weak volume: 

With only 879kt of volumes, Novelis saw sharp impact of can destocking across markets. But at US$479/t, Ebitda/t drove 3% beat at the Ebitda level, as the company benefitted from better mix (higher Auto) and improving pricing (including PPI pass-through). With destocking largely over and improving promotion levels, mgmt expects volumes to improve. Mgmt also raised the Ebitda guidance from US$400-450/t earlier to US$450-500/t for next couple of quarters. Also indicated higher confidence for Q4 Ebitda of US$525/t, led by better volumes & pricing, and improving scrap spreads that should offset mix impact. 

Weak LME Al outlook a key risk: 

Amid rising supply from Chinese smelters and weak western market demand, mgmt expects LME Al to range between US$2,100-2,300/t. This would directly impact the India business Ebitda, although rising downstream volume/profitability and lower coal costs would provide an offset. Novelis would primarily be impacted by lower scrap spreads and slower return to sustainable Ebitda/t guidance of US$525/t.