Novelis Inc., a US subsidiary of Hindalco Ltd., reported another strong quarterly performance for the three months ended September. This was the fourth consecutive quarter when the company’s Ebitda per tonne crossed the $510 level. Ebitda means earnings before interest tax, depreciation and amortization.
Adjusted EBITDA increased 22% year-over-year to $553 million in the second quarter of fiscal 2022. The increase was primarily driven by higher volumes and favorable metal prices which partially offset inflationary cost pressures. Analysts said that helped better scrap spreads, which more than offset pressure on higher-margin auto volumes amid a shortage of semiconductor chips.
The company’s net sales in the September quarter rose 38% year-over-year to $4.1 billion, a significant increase compared to $3 billion in the year-ago period. This was primarily driven by a 5% increase in shipments and higher average aluminum prices, the company said.
A diversified portfolio of high-recycled-materials products, the company’s management said, allowed it to capture strong market demand and deliver another record quarter of strong operating performance.
Analysts at Centrum Stock Broking Ltd said, “Strong global demand for aluminum products such as beverage cans and specialties has helped Novelis maintain earnings momentum despite some moderation in auto volumes.
Along with strong operating performance, the company also posted strong growth in net profit, which grew 59% year-on-year.
No wonder the company’s balance sheet continues to strengthen. The net leverage ratio (net debt / trailing twelve-month adjusted EBITDA) at the end of Q2 of FY22 stood at 2.4 times as compared to 3.7 times a year ago.
It is now planning the next phase of expansion, announcing an investment of approximately $500 million in development capital projects. These include 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 increase hot mill capacity and enhance automotive sheet finishing capabilities.
Analysts are raising their earnings estimates following the strong performance of Novelis.
The folks at Centrum Stock Broking have revised Novelis’ FY22E EBITDA per tonne estimate from $536 to $536 after factoring in the H1FY22 numbers. Besides, higher aluminum prices augurs well for Hindalco’s domestic operations. Considering the higher aluminum prices on the London Metal Exchange ($2,300 a tonne each in FY22 and FY23 compared to $2,600 a tonne earlier), marginally offset by the higher cost of production, Centrum Stroking has also increased its consolidated FY22 and FY23 EBITDA. 9% and 5% respectively.
Novelis accounts for more than two-thirds of Hindalco’s operating profits. Hindalco’s share prices have risen more than 90% year-on-year.
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