Hindalco clears air on financial viability of Novelis' Bay Minette project after cost overrun

Addressing the shareholders' concern, Hindalco's Managing Director, Satish Pai, said in an exclusive interview with CNBC-TV18 that the project is financially viable and returns are likely to improve in the second phase.

"This is a greenfield strategic project, where we set the base for further expansions. So we are getting 600 kt at this 4.1 billion, but for the next 600 kt, the capex will be from about $1500-2,500 a tonne. So for much less capex, we can double the capacity going forward. So I think, for Novelis, that is the world leader in aluminium rolling, this is a great strategic project. It is financially viable in phase one, and the returns will only improve when we do phase two," he said.

Refuting any possibility of the Bay Minette project getting scrapped, Pai added, "We are absolutely committed to going forward because we are the world leaders, and the largest company by far in rolled products. And we think that it's in our strategic interest to do this project."

Pai mentioned that Novelis' EBITDA per tonne will move to $600 before the Bay Minette Project is commissioned. He added that the project will have a cost advantage and the profit will be much higher.

Hindalco Industries reported a 71.1% rise in its net profit for the quarter ending in December 2023 riding on the decline in costs for the period under review.

Satish Pai expects the domestic aluminium EBITDA per tonne to hold around $880 and the copper performance to improve in the upcoming quarter.

"On the aluminium side $880 I think Q4 will be in a similar range because unless the LME moves upward, I think the EBITDA per tonne on the alminimumm business will be in that $800 to $900 which is by the way a fairly good level for us. The copper performance I think can be sustained in fact, I think Q4 should be probably a little bit better than Q3 if anything. So I think the Rs 6000 plus crores on the copper side can be sustained," he added.

Meanwhile, brokerage firm Macquarie maintained an ‘outperform’ call on Hindalco stock at a target price of ₹570 per share. The brokerage observed that the company’s focus remains on completing downstream and alumina expansion projects.

According to Macquarie, the copper and aluminium segment drive EBITDA beat while copper EBITDA grew 20% year-on-year to ₹660 crore. The aluminium segment EBITDA grew 46% YoY led by lower coal cost. The company’s India business has a net cash balance now, the brokerage said.