Hindalco shares drop despite subsidiary Novelis reaching guided operating profit sooner than expected

Shares of Aditya Birla Group company Hindalco Ltd. will be in focus on Wednesday after its subsidiary Novelis achieved its guided operating profit or EBITDA per tonne level sooner than projected.

Novelis had guided for getting its EBITDA per tonne back above the mark of $500 by the March quarter of financial year 2024. It achieved a figure of $519 two quarters prior. The subsidiary contributes to more than 70% of Hindalco's consolidated operating profit or EBITDA.

The EBITDA per Tonne improvement came from Europe, where the metric increased by 44% from last year to $391, while in North America, the EBITDA per Tonne increased by 8% year-on-year.

Novelis expects its EBITDA per Tonne to range between $450 and $500 for the December quarter, while for the final quarter of the financial year, it sees that figure at $525.

For the September quarter, both net sales and net profit from continuing operations for Novelis fell 14% each from the year-ago period to $4.1 billion and $157 million respectively.

Operating profit or EBITDA also declined marginally from last year to $484 million from $506 million last year, while it improved from the June quarter levels of $421 million.

However, volumes for the company improved by 6% sequentially as can de-stocking largely ended. De stocking means reducing the amount of stock held or refusing to stock certain products.

The sequential improvement in volumes was led by operating leverage and efficiencies along with improved metal price spreads.

Novelis though, is cautious on the specialty segment given the uncertain macro environment.

Brokerage firm Equirus has maintained its "Add" rating on Hindalco with a price target of ₹535 for December 2024. It has raised its EBITDA per Tonne estimates for financial year 2024 - 2026 by 5% to 8% in order to factor in a better-than-expected September quarter.

While Nuvama has maintained its "Hold" rating on Hindalco, it has increased its price target to ₹552 from ₹492 earlier. It has also raised its consolidated EBITDA estimates for financial year 2024 and 2025 by 7% and 1% respectively.

Shares of Hindalco are trading 1% lower at 479.6. The stock needs to trade above levels of ₹487.05 to turn positive for 2023.