BackLower costs bolster Hindalco’s Q4 numbers; FY21 growth may falter
Ebitda per ton showed a decent improvement domestically in Q4Another positive is that the firm’s smelters were also operating at full capacity, there is likely to be very limited production loss in FY21
PremiumHindalco Industries Ltd results were marginally ahead of the Street expectations, despite marginal dip in revenue. The Q4 figures came on the back of strong improvement in domestic operations, shored up by a lower cost of production of aluminium.
The stock held flat, though, in trade on Monday, despite a steep fall in the broader market.
Revenue was marginally lower, by about 2% quarter-on-quarter (q-o-q) in Q4, because of lower prices.
However, a significant reduction in input costs boosted Hindalco’s Ebitda.
The cost of production of aluminium fell by a substantial 5% sequentially, said analysts at ICICI Securities. As a result, domestic standalone Ebitda expanded by about 13% q-o-q in Q4. Ebitda is earnings before interest, tax, depreciation and amortization.
In the coming quarters, input costs are likely to remain tepid as prices of aluminium supplies have come off significantly.
“We expect input costs to stay benign for the near term. Aluminium has been strengthening owing to an apparent recovery in China and fears of covid-19’s impact on aluminium supplies in South America, which contribute 1.4-1.7% to global production," analysts at Emkay Global Financial Services said in a note.
The firm’s smelters were operating at full capacity during the lockdown. This will limit production loss in FY21.
A slack in domestic demand continues to hamper prospects. As such, the company has turned to exports to boost revenue. The management said that it exports about 80% of its production.
To conserve cash, Hindalco has cut back on capital expenditure by about ₹800 crore in FY21. However, its Utkal Alumina expansion is on course and is expected to be commissioned in the last quarter. This will help reduce production costs further.
Hindalco’s consolidated net-debt-to-Ebitda, which had increased by about 300 basis points to 2.7 times in FY20, is a worry.
The increase was primarily because of higher capex in Novelis Inc. and the domestic business. Aleris Inc.’s acquisition will further add to the debt profile of the company, but it should be able to service the debt comfortably.
“Hindalco appears not only much better placed than sector peers in leverage ratios, as its profitable out-of-India business favours it since domestic demand is sketchy at best," said analysts at ICICI Securities. Much depends, though, on how aluminium prices move.
Hindalco’s stock nosedived by about 60% in 2020 till March on covid-19 selloff. But it clawed back and is now down 33% this year. Further gains may be muted because of an expected dip in earnings in FY21 as a result of the slowdown.
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