Hindalco Industries on November 11 beat estimates as it reported a jump in net profit to Rs 3,909 crore in the September 30-ended quarter, compared to Rs 3,298 crore in the year-ago period, the company filing showed.

Revenue from operations rose 7 percent to Rs 58,203 crore in the reported quarter, over Rs 54,169 crore in the year-ago period. According to Bloomberg estimates, 11 analysts projected a net profit of Rs 3,254.5 crore, while 12 analysts forecast net revenue of Rs 54,984.10 crore for Hindalco.

Hindalco Industries’ share price settled higher in Monday's trade to quote at Rs 655.05 per share on the NSE, up marginally by 0.71 percent.

The mining and metal major reported consolidated EBITDA of Rs 9,100 crore  up 49% YoY, driven by lower input costs and higher volumes, the company said.

Quarterly revenue from the copper India business came in at Rs 13,114 crore, up 5 percent, on account of higher shipments and realisation. Meanwhile, consolidated revenue from operations of aluminum upstream increased 79 percent YoY, while that of aluminum downstream decreased 1 percent YoY at Rs 154 crore, the company said in an exchange filing on November 11.

"The domestic demand is very strong. Right now, exports constitute 34 percent, whereas domestic sales are at 66 percent. Domestic is driven by electricals, conductor cables, electrification, packaging, etc. The only one that has slowed down a little bit is auto," Managing Director Satish Pai said in a post-earnings call with journalists.

Meanwhile, he also noted a tightness in the aluminum scrap availability for Indian markets as China lifted restrictions on aluminum scrap imports. "I would expect that scrap coming into India will actually not go up right now with these scrap spreads," Pai added.

Capex of $4 billion-$5 billion for upstream expansion

In a bid to grow the upstream side of business, Pai flagged that Hindalco plans to invest between $4-5 billion over the next three years.

"The last few years, we invested in downstream aluminum and copper. Now, with the healthy balance sheet and looking at the Indian economic growth, the next three years, we are going to invest in upstream aluminum and copper, and those are of course larger and more CapEx intensive," he said.

Hindalco is set to invest heavily in upstream aluminum smelters, alumina refineries, and copper recycling plants. While some of these projects, like the copper smelter, are brownfield expansions, the alumina refinery and copper recycling plant are planned to be greenfield expansions. The company is expected to spend around $1-1.5 billion per year over the next three years, Pai said.

The ambitious capex plan will be funded through a combination of internal accruals and additional debt, which is expected to reach Rs 7,000 to Rs 8,000 crore, Pai said. This is over and above the Rs 6,000 crore already allocated for completing its downstream capacities, including the significant FRP (flat-rolled products) project in Lapanga.

Bleak quarters for Novelis ahead

Last week, its US-based subsidiary Novelis Inc. posted an 18 percent decline in Q2 net income as a result of a $61 million charge associated with the production interruptions at its Sierre plant, along with higher restructuring and impairment expenses and lower operating performance.

Net sales for the second quarter rose by 4.5 percent to $4,295 million over $4,107 million in the year-ago period.

Commenting on the outlook, Pai said, "I think that the next few quarters for Novelis... they are going to be a little bit tough because the scrap spreads are tightened. So I think that for the IPO, we will wait till we are happy with the market conditions," Pai said.

He flagged that Novelis uses 63.2% scrap in their mix, and hence profitability is going to get impacted when those scrap spreads tighten.

"We are now waiting, we have of course started to take some measures, different types of scrap trying to get the spreads back," he added.

The EBITDA per tonne stood at $489/t during the quarter, and the adjusted EBITDA stood at $462 million. The EBITDA decline was primarily driven by the increase in aluminum scrap prices, unfavorable product mix, and the impact caused by floods at the Sierre plant.

The aluminum recycling company withdrew its initial public offering (IPO) filing on October 8, citing market conditions. The company had previously postponed its IPO in June 2024 for the same reason.

Earlier this week, domestic brokerage Emkay Global downgraded Hindalco to 'sell' from 'reduce' following a disappointing outlook from Novelis.

"We were not convinced with its steep EBITDA/t improvement trajectory in the medium term. With the company now withdrawing its EBITDA/t guidance over concerns surrounding accelerating tightening of scrap spreads with liberalization of scrap imports by China, we think it creates a near-term overhang for the stock," said Emkay Global.

Published On - November 11, 2024 / 21:23 IST

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