BackHindalco prospects look better on Novelis's strong performance, project pipeline
Novelis plans to invest around $500 million in growth capital projects. These include a $375 million spend to expand its rolling and recycling capabilities in Zhenjiang, China, and a $130 million investment at its Oswego plant in the US
PremiumThe US subsidiary of Hindalco Ltd, Novelis Inc., reported yet another strong quarterly performance for the three months ended September. It was the fourth quarter in a row when the company’s Ebitda per tonne exceeded the $510 mark. Ebitda stands for Earnings before interest tax depreciation and amortisation.
Adjusted Ebitda rose 22% year-on-yearto $553 million in the second quarter of the fiscal 2022. The increase was primarily driven by higher volumes and favourable metal prices which partially offset inflationary cost pressures. Analysts said improved scrap spread helped, which more than offset pressure on high-margin auto volumes amid a shortage of semiconductor chips.
The company’s net sales rose 38% year-on-year to $4.1 billion in the September quarter, significantly higher compared to $3 billion in the year-ago period. This was primarily driven by a 5% increase in shipments and higher average aluminium prices, said the company.
A diverse portfolio of high-recycled-content products, the company’s management said, allowed it to capture strong market demand and deliver another record quarter of strong operating performance.
“Strong global demand for aluminium products like beverage cans and specialities has helped Novelis to maintain earnings momentum despite some softness in auto volumes," said analysts at Centrum Stock Broking Ltd.
With strong operating performance, the company’s net profit also marked a robust growth, rising 59% year-on-year.
No wonder, the company’s balances sheets have continued to strengthen. Net leverage ratio (net debt/trailing twelve months Adjusted EBITDA) improved to 2.4 times at the end of the second quarter of fiscal 2022, compared to 3.7 times a year ago.
It is now planning the next phase of expansions, having announced investing approximately $500 million in growth capital projects. These included a $375 million investment to expand its rolling and recycling capabilities in Zhenjiang, China, and a $130 million investment at its Oswego plant in the US to ramp up hot mill capacity and enhance automotive sheet finishing capabilities.
Following Novelis's strong performance, analysts have been raising their earnings estimates.
Those at Centrum Stock Broking have revised Novelis’s FY22E Ebitda per tonne estimate to $536 from $520 to factor in H1FY22 numbers. Besides, higher aluminium prices bode well for Hindalco’s domestic operations as well. Factoring in higher aluminium prices on the London Metal Exchange, ($2,600/tonne in each of FY22 and FY23 compared to $2,300/t earlier), offset marginally by higher cost of production, Centrum Strock Broking has also raised its consolidated FY22 and FY23 EBITDA by 9% and 5% respectively.
Novelis contributes to more than two-thirds of operating profits for Hindalco. Hindalco stock prices have risen more than 90% year-to-date.
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