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Performance exceeds our estimates; outlook positive

* Hindalco (HNDL)’s 1QFY24 consolidated revenue was down 9% YoY to INR530b, 12% above our estimate of INR475b.

* Consolidated EBITDA declined 32% YoY to INR57b, 10% above our estimate of INR52b. The beat was led by better price/mix improvement, better downstream aluminum performance, lower input costs, lower energy costs and other expenses during the quarter.

* HNDL’s finance cost rose 16% YoY to INR10b, while depreciation came in at INR18b (up 2% YoY) in 1QFY24.

* APAT was down 40% YoY to INR25b, 22% above our estimate of INR20b. The improvement was backed by higher other income, which was partially offset by higher interest costs and tax outgo.

Aluminum upstream business

* Shipments in 1QFY24 stood at 341kt, taking the estimated yearly shipments to 1.35mt for FY24.

* Revenue for the upstream business stood at INR81b; EBITDA declined 41% YoY to INR19b due to lower metal prices and unfavorable macros, which were partially offset by higher shipments.

* EBITDA/t for upstream business stood at USD691 and EBITDA margin was at 24% in 1QFY24, which was one of the best among global peers.

Aluminum downstream business

* Shipments in 1QFY24 stood at 81kt (10% below our estimate of 90kt), taking the estimated yearly shipments for FY24 to over 350kt.

* Revenue for the downstream business was down 11% YoY to INR24b; EBITDA too declined 7% YoY to INR1.5b (but improved 31% QoQ). Lower shipments and metal pricing impacted EBITDA adversely.

* EBITDA/t for downstream business stood at USD220 (up from USD152 in 4QFY23) and is expected to remain over USD200/t going forward.

* Combined EBITDA/t for aluminum vertical stood at USD739 (34% above our estimate of USD534).

Copper business

* Copper metal shipments in 1QFY24 were the highest ever at 118kt, taking the estimated yearly shipments for FY24 to over 430kt.

* Revenue was up 9% YoY at INR115b; however, EBITDA was down 6% YoY to INR5.3b in 1QFY24. The performance was aided by higher shipments, which was partially offset by planned maintenance shutdown.

* EBITDA/t for copper vertical stood at USD547 in 1QFY24 (in line with our estimate of USD534).

Highlights from the management commentary

* Coal cost declined 2% QoQ and is likely to further reduce by 3% in 2QFY24.

* Chakla mine is progressing as per timelines and the box cut is expected to come on stream by Oct’24.

* About 41% of coal requirement was met via linkage, which is expected to reach 57-60% in 2QFY24 and would remain stable at that level.

* The Silvassa facility (of 34kt) is likely to come on stream in FY24 and the domestic downstream aluminum capacity is expected to reach 600kt in the next two years.

* The hedge remained unchanged at 11% of Indian aluminum business at USD2,755/t during the quarter.

* HNDL expects LME to be in the range of USD2,100–2,300/t for FY24.

Valuation and view

* We believe that HNDL reflects strongly on long-term opportunities and we remain confident on the company’s ability considering its leadership position in both beverages can and automotive markets.

* Considering robust domestic demand aided by higher demand from EV & consumer durables, higher spend on infrastructure & construction and higher public & private sector capex, we have raised our FY25E EBITDA/ APAT by 4%/10%.

* We reiterate our BUY rating with an SoTP-based TP at INR550.

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