Mixed fortunes for Hindalco in India, US

Soft realisations dent Q1 numbers; Novelis provides shot in the arm

The impact of declining base metal realisations was clearly visible on Hindalco Industries’ domestic performance for the June quarter (Q1), which came lower than expectations.

This was also in contrast to the strong numbers that Novelis (Hindalco’s US subsidiary) — largely a convertor of the white metal into value-added products — had reported a few days back.

The pressure of falling realisations was more profound on domestic operations, given global aluminium prices dropped 21 per cent year-on-year (YoY) to $1,793 per tonne during the quarter. The copper smelter’s profitability, too, suffered due to moderation in Treatment and Refining Charges (or TC/RC) and sulphuric acid prices.

Rising imports — aluminium scrap imports grew 8 per cent YoY while copper imports rose 11 per cent YoY — also had affected domestic realisations and volume growth.

Hindalco’s aluminium metal sales grew 7 per cent to 320,000 tonnes (versus 300,000 tonnes in Q1FY19). However, the segment’s (including Utkal Alumina refinery) earnings before interest, tax, depreciation and amortisation (Ebitda) came in much lower at ~889 crore, versus ~1,532 crore in Q1FY19 — a decline of 42 per cent — due to pressure on realisations (prices).

The domestic copper market grew 9 per cent YoY. However, maintenance shutdown by Hindalco led to a decline in volumes. With realisations also under pressure, this segment’s Ebitda fell 23 per cent YoY to ~267 crore.

Consequently, standalone revenue at ~10,256 crore missed the consensus estimate of ~10,732 crore. With lower segmental operating profits, the reported net profit (after the exceptional expense of ~21.8 crore) of ~22.58 crore was much lower than analysts’ estimate of ~157 crore, as well as the yearago figure of ~413.53 crore.

At the consolidated level, though, a stable performance by Novelis (Ebitda up 5 per cent YoY to ~2,538 crore) provided cushion and restricted the fall in net profit to 28 per cent YoY at ~1,063 crore. Novelis’ pertonne profitability improved 7 per cent to $448 during the quarter. While analysts remain confident of Novelis’ stable results, they feel Hindalco’s integrated domestic operations are still better than global peers.

Edelweiss Research says that despite LME Aluminium prices remaining under stress, it sees stable earnings from Novelis as a support for Hindalco.

Even analysts at Prabhudas Lilladher have maintained their positive rating for Hindalco.

However, the Street will remain watchful of Novelis’ acquisition of Aleris, which has been delayed. Further stress on base metal prices, however, may limit sentiment.

The stock, has been trending down since last September, further corrected 2.73 per cent on Friday.