Q3FY23 Review: Hindalco: Novelis to see gradual recovery

10 Feb 2023 , 10:59 AM

Hindalco reported in-line India business performance, with Al Ebitda of Rs17.5bn (flat QoQ) and CU Ebitda of Rs5.46bn (flat QoQ). Outlook for Q4 is better with LME Al inching up and COP likely to fall 5% QoQ. Novelis missed the already-weak estimates with Ebitda/t of US$376/t. The path to sustainable Ebitda/t of US$525 would be gradual, given that destocking for can sheets continues. Improving scrap spreads, easing costs and contract resets will be the key. Meanwhile, capex on all key projects continues, but would be paced according to OCF levels.

India business reported Ebitda of Rs17.5bn for Al business, which was flat QoQ. While volumes were 4% lower QoQ at 325kt of external sales, per tonne realisations were better though offset by utilisation of higher cost inventory. Coal-purchase costs dropped 20% QOQ amid fall in e-auction premiums, given better availability. Copper business was stable with Ebitda of Rs5.46bn on flat volume of 109kt, during the quarter.

Novelis suffered in Q3 with the 60kt can-sheet destocking impact weighing on vol to 908kt in Q3. Combined with higher costs and lower scrap spreads, this led to Ebitda/t of just US$376/t in Q3. Management maintained sustainable Ebitda/t of US$525/t as costs ease, customer contracts are reset and scrap spreads have started to expand in both South and North America. But, near-term uptick would be gradual given that can-sheet destocking continues.

Analysts of IIFL Capital Services maintain Ebitda estimates and BUY rating, despite near-term pressures for Novelis with target price of Rs 505.