Hindalco’s outlook remains firm; aluminum prices boost performance
Hindalco Industries Ltd’s strong performance for the June quarter (Q1 FY22) was led by strong performance across all segments. Aluminum margins in India reached record levels, driven by firm base metal prices, while Novelis’ exceptional performance with record profitability helped drive consolidated performance.
Indian operations were boosted by aluminum prices (with premium) on the London Metal Exchange, which averaged around $ 2,556 per tonne during the June quarter. This compares to an average of $ 1,567 per tonne in the quarter of last year and $ 2,020 per tonne in the previous quarter, respectively.
The aluminum business EBITDA increased 29% sequentially to Rs 2,352 crore, despite an 8% drop in volumes due to the impact of the foreclosure. The company attributed this to favorable macros, an improved product line, and improved operational efficiency. This pushed India’s overall EBITDA up 29.3% sequentially to Rs2430 crore.
With firm aluminum prices and a gradual reopening of the economy, the company’s profitability outlook remains strong. Rising domestic consumption will help improve margins. The company resorted to exports in the June quarter to offset lower domestic volumes during the lockdown.
“We believe that the price increase, the completion of the alumina expansion by the second quarter of fiscal 22, the concentration on value-added products in the aluminum and copper sectors and the completion of the announced expansion of extrusion and flat-rolled products (FRP) capacity over the next several years bodes well for operations in India. “said analysts of Elara Securities India Private Ltd.
The copper smelter maintenance shutdown seen in the first quarter is also late, and the segment will further boost the performance of the company.
The company reported a good show for its US subsidiary Novelis. Novelis posted its best quarterly adjusted EBITDA of $ 505 million in the fourth quarter. This was attributed to higher organic volume, favorable metal benefits and an improved EBITDA contribution from the Aleris acquisition.
Overall, analysts have a good outlook for Hindalco. Favorable factors for Novelis include the synergy forecast for the upward revision of Aleris acquisition, continued expansions and strong demand for its products. For Indian aluminum, which is experiencing a strong recovery in domestic demand, improved profitability per tonne with firm LME prices bodes well.
Other factors that are keeping analysts positive on the company include management expectations for TC / RC improvement in 2HFY22, strong free cash flow generation and the focus on deleveraging to contain debt. net / Ebitda. Analysts at JM Financial Institutional Securities Ltd predict a reduction in net debt / EBITDA from 2.9x in FY21 to 1.7x in FY23, given the strong generation of free cash flow.
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