Novelis Inc, a US subsidiary of Hindalco Ltd, managed to do well in the December quarter despite several challenges. COVID-related disruptions in various markets continued to pose challenges in the seasonally weak quarter. The company’s shipments were also affected by semiconductor shortages faced by the automotive industry in North America and other regions.
Supply chain disruptions and unplanned downtime in South America were cited as other reasons hurting sales volume. The company’s shipments remained flat year over year at 930,000 tons and fell 4% sequentially. Notably, volumes missed analysts’ expectations. Analysts at Motilal Oswal Financial Services Limited (MOFSL) had forecast volumes at 960,000 tonnes.
Despite the expected decrease in volume, the company still saw growth of 33.5% year-over-year and 5% sequentially, thanks to a favorable pricing environment and product mix.
Operating performance also remained strong and EBITDA of $544 per tonne was better than $537 seen in the year-ago quarter. Adding to the confidence, Novelis is bullish on demand across segments and has maintained its margin guidance of $500 a tonne. This will increase the confidence of Hindalco investors.
Taking into account the strong Q3 performance of Novelis and the outlook for aluminum prices on LME, analysts at MOFSL have increased their FY22 and FY23 earnings estimates for the company by 19.6% and 15%, respectively. . Shares of Hindalco were up as much as 1.9% in morning trade on Tuesday following the post-Novelis results.
Going forward, the prospects for development also remain favorable. Analysts say that with the establishment of new facilities for beverage cans, the sheet market will continue to see strong demand. The company expects demand to grow by 5% in CY22. Favorable housing fundamentals in the US and Europe are driving strong specialty business demand. The aerospace order book also remains strong. It is the automotive segment that may still witness some uncertainties during the calendar year 2022.
Among other positives, following the acquisition of Aleris, the company has achieved a combined synergy run rate of $107 million and is on track to reach $220 million with the establishment of a recycling center in China.
With good cash flow, the company has been witnessing regular debt reduction. Ebitda’s net debt stood at 2.3x at the end of the third quarter, up from 2.9x at the end of FY15.
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