Novelis’ preliminary Q3 report looks bearish, impacting Hindalco’s recent stock price

Novelis, the global leader in aluminium rolling and recycling and a wholly owned subsidiary of Hindalco has released a preliminary financial report for the third quarter of FY2024-25, outlining its anticipated fiscal and operational performance for the three-month period.

Novelis believes its earnings before interest, tax, depreciation and amortization (EBITDA) on an adjusted basis to be between $360-370 million, reflecting about a 21 per cent decline from $454 million recorded during the corresponding period of the previous year. EBITDA for the same period is estimated to range between $400 and $407 per tonne, down by 18-19 per cent Y-o-Y from $499 per tonne.

Aluminium flat rolled products shipments are likely to remain the same as the previous year, standing at 910,000 tonnes. Despite the steady volume of shipments, EBITDA is anticipated to fall year-on-year, attributed to unfavourable product mix during the third quarter of 2024. However, the management is optimistic about the ongoing quarter, expecting EBITDA to rebound to $480-490 per tonne at the end of March 31, 2025.

Quarter vs Quarter comparison

The annual decline in EBITDA has continued since the second quarter of the fiscal year. In Q2, Novelis’ EBITDA had seen a 5 per cent fall Y-o-Y, reaching $462 per tonne. In addition to an unfavourable product mix, a $25 million impact at its Sierre plant due to flood contributed to the downfall.

In the third quarter, EBITDA is projected to fall not only over a year but also by about 11-13 per cent from its preceding quarter. Shipments are also estimated to record a quarter-on-quarter downfall by 3.7 per cent from 945,000 tonnes.

Impact on Hindalco’s share price

An award-winning institutional brokerage and investment group, CITIC CLSA, is of the opinion that Novelis’ weakness was in projection due to continued correction in aluminium scrap spreads. The brokerage firm also believes the sluggish trend of Hindalco’s stock price is partially due to the slower performance of Novelis. Over a day last week, Hindalco’s stock price decreased from INR 591.05 (US$6.84) on January 9 to INR 574.40 (US$6.64) on January 10. As of January 13, 

Hindalco’s domestic business remains robust, driven by a steady aluminium price environment and a low-cost infrastructure. In this background, CLSA has given Hindalco an “outperform” rating.