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Novelis to witness margin recovery; India business stable

Hindalco reported 1Q consol. adj. EBITDA of INR57.3bn, higher than JMfe of INR49.5bn. India aluminium business (incl. Utkal) delivered an EBITDA of INR20.8bn down 9.6% QoQ driven by lower realisation. Net debt increased sequentially to INR385bn (vs INR340bn in 4Q) primarily due to higher working capital requirements. Key takeaways from the call are a) CoP India aluminium to decline by 3% QoQ during 2QFY24 b) 11% of FY24 aluminium volumes hedged at USD2.8k/t c) Chakla mine moving as per plan and expected to be operational by FY26 d) the company recently won the Meenakshi west mine which can offer ~6-7mn ton of coal per year e) capex for India operations / Novelis during FY24 expected at INR45bn / US$1.6-1.9bn. The long term outlook for Hindalco continues to remain buoyant given a) Novelis – remains confident of achieving its medium term EBITDA/t guidance of ~US$525 (expected by 4QFY24) b) resilient performance by India aluminium operations c) enhanced coal security post acquisition of Meenakshi, Meenakshi west and Chakla coal mines and d) growth capex to augment capacity in downstream business. Hindalco, given ~70%+ steady/strong EBITDA being non-LME linked, remains our preferred play in the metal space. Re-iterate Buy

* Novelis margins aided by lower RM and favourable mix: Novelis reported quarterly adjusted EBITDA of $421 mn (vs $403 mn), up 4.0% QoQ, due to favourable product mix and better cost control. Novelis reported adjusted EBITDA per ton of $479 in Q1FY24 vs $431 in the prior quarter. Novelis’ revenue stood $4.4 billion (vs $4.2 billion), up 4.7% YoY, on account of higher aluminium prices and shipments. Total shipments of flat rolled products were at 879 Kt in Q1 FY24 vs 936 Kt in Q4 FY23, down 6% QoQ due to lower beverage can shipments and unfavourable economic conditions impacting some specialties markets mainly in building & construction, partially offset by record automotive shipments.

* India AL business spreads adversely impacted by lower realisations: Aluminium EBITDA stood at INR20.8bn in Q1FY24 vs INR23.0bn for Q4FY23. Upstream EBITDA margins were at 24% and continue to be one of the best in the global industry. Upstream revenue stood at INR80.6bn in Q1FY24 vs INR80.5bn in the previous quarter. Downstream revenue stood at INR24.4bn in Q1FY24 vs INR27.4bn in the prior quarter. Sales of downstream aluminium stood at 81 Kt vs 90 Kt in Q4FY23. India Copper business EBITDA stood at INR5.3bn in Q1FY24 compared to INR6.0bn in Q4FY23, on account of planned maintenance shutdown. Coal sourcing during 1QFY24 comprised of 41% linkage coal, 53% e-auction, 2% captive and 4% imports. Linkage coal for Q2 expected at 57-60%.

* Growth capex on track: Hindalco remains committed towards on-going projects with company’s 350 Kt expansions via debottlenecking at Utkal Alumina remaining in progress. 34Kt aluminium extrusions plant in Silvassa began commercial production. Further, Hindalco has set up a dedicated facility to build the first all-aluminium cargo body for the new generation of Tata Ace EVs

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