Hindalco ebbs as high coal cost and low metal rates hurt sentiment

He added that the average LME in the first quarter of the fiscal was $2,800 per tonne.

“In Q2, it's running at $2,400 per tonne, so nearly $400 per tonne lower. So you are going to see the upstream aluminium margins contracting in Q2, whereas we expect copper, Novelis and aluminium downstream to do very well in Q2,” Pai said.

Hindalco shares started the session in the green but soon slipped nearly 3 percent from the day’s high. The alumina stock was trading at Rs 433.75, down 1.43 percent from the previous close, at 1:45 pm.

In the quarter ended June 2022, aluminium upstream EBITDA stood at Rs 3,272 crore, up 41 percent from Rs 2,317 crore in the same quarter last fiscal, primarily due to favourable macros, higher volumes, and better operational efficiencies, partially offset by higher input costs, the firm said on Wednesday in a regulatory filing.

Downstream EBITDA/t, meanwhile is likely to move towards $270 per tonne in the July to September 2022 period, against $261 per tonne in the previous quarter, Pai said.

He pointed out that Hindalco’s US subsidiary Novelis has certain uncertainties. Wth interest rates in the US market going up, it will affect the building and construction sector and will lead to auto sales slowdown.

Novelis’ reported a record adjusted EBITDA per tonne of $583, compared to $570 a year earlier. The company’s management had already revised its sustainable EBITDA per tonne guidance to $525 plus from earlier $500 plus.

“We have been cautious when we give that guidance. The potential to surprise always is there, but the macro environment also is a bit cloudy right now, especially in the US and Europe and hence we have been a little bit cautious when we give that 525 guidance,” he said.

Globerage brokerage CLSA has raised its target price on Hindalco's stock to Rs 525 per share with a buy rating after EBITDA beat estimates.

CLSA expects profitability to recover in the second half of the fiscal as coal costs soften, it said. With 60 percent EBITDA from its conversion business, Hindalco remains well placed, the brokerage said.

Jefferies, meanwhile, has a hold call on the stock, and has raised its target raised to Rs 380 from Rs 310 per share. A 15 percent sequential upside in the Q1 EBITDA is 24 percent above the brokerage's estimate. EBITDA is led by better-than-expected margin across businesses, it added.

India aluminium EBITDA/t, is coming off from Q4 peak, the brokerage said adding, that it expects a further contraction in India aluminium EBITDA/t. Jefferies has raised FY23-24 EPS estimate by 9-13 percent.