Hindalco down 5% after Novelis income declines amid cost pressure

The net sales of the company during the quarter under review rose to $4,799 million from $4,119 million in the year-ago period.

Steve Fisher, President and CEO, Novelis Inc, said, the company delivered a solid second quarter despite challenging headwinds from inflation, the stronger US dollar, and reduced metal benefits, with good operational performance that allowed it to capture robust end-market demand in the quarter and increase total shipments.

The company’s financial results were mostly in line with expectations and for the near-term, the company expects some pressure on EBITDA per tonne, for which it had given a guidance of $525/tonne.

It is likely to see cost headwinds of $75-125/tonne on EBITDA/tonne as there has been steep and persistent inflation in energy prices, and the freight while supply chain issues have led to higher costs.

"Although the current macro-economic environment is uncertain, we believe long-term demand for sustainable, lightweight, infinitely recyclable aluminium remains intact. We continue to progress our transformational investment strategy to grow with our customers, reaching an exciting milestone in the US with the ground-breaking of our new recycling and rolling plant in Alabama last month," Fisher said.

Novelis is likely to witness capital expenditures between $900 million to $1 billion during 2022-2023 fiscal, though the previous guidance was in the range of $1.3 billion to $1.6 billion.

Brokerage firm CLSA has a buy call on the stock of Hindalco with a target price of Rs 523 per share even though it has a weak outlook for Novelis for the near term. It said cost headwinds could lead to sharply lower margins.