Hindalco Q2 results preview: Lower costs, rising volumes to compensate for weak Aluminium prices

Hindalco Industries Ltd is likely to report its performance for domestic operations today. Hindalco Q2 performance is likely to see an impact of lower aluminum prices. Aluminium during the July to September quarter averaged $2,154 a tonne on the London Metal Exchange and was 9% lower on a year-on-year basis and 5% lower sequentially. As the lower prices provide a dampener, however, the aluminium sales volumes are likely to compensate for the fall to some extent. The Copper business is also seeing a regular rise in volumes and profitability and will cushion domestic performance.

Kotak institutional Equities estimate Aluminium sales volume to come at 3,50,000 tonne up 4% sequentially and match the year ago volume numbers. Copper sales volume at 120,000 tonne are set to rise 7.1% year-on-year and 1.7% sequentially.

The impact of lower coal prices will also be felt by Hindalco during Q2.

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As per Kotak estimates India Earnings before interest tax depreciation and amortisaton (Ebitda) (standalone + Utkal) at around ₹2400 Crore will rise 15% year on year, 7% sequentially. Hindalco’s aluminum Ebitda (including Utkal) of ₹1820 Crore may rise 17% year-on-year, 6% sequentially led by lower costs more than offsetting lower LME prices. Hindalco’s Copper Ebitda of ₹590 Crore, up 8.6% year on year, 11.3% sequentially, led by normalised operation after maintenance shutdowns in previous quarter, strong TcRcs (treatment and refining charges) and downstream volumes.

Hindalco’s consolidated performance is to be supported by strong performance already reported by Hindalco’s Us subsidiary Novelis.

Novelis had seen strong improvement in profitability on sequential basis and also rise in volumes on Sequential basis. Novelis after seeing dip in performance during the December’22 quarter, has been seeing regular improvement in performance during last three quarters.

Novelis Earnings before Interest Tax depreciation and amortization (Ebitda) per tonne at $519 improved from $ 479 in the previous quarter. Notably this is now closer to Novelis guidance Ebitda per tonne of $525 by Q4.

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Analysts at Jefferies India Pvt Ltd in their first cut post results had said that Novelis delivered the third consecutive quarter of sequential improvement in Ebitda which rose 15% sequentially in Q2 and was 12% above Jefferies estimates. Volumes grew 6% sequentially while Ebitda per tonne rose 8% sequentially to $519 led by operating leverage. Novelis believes the destocking in cans is largely behind, while auto and aero demand remains strongRead