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Novelis 4QFY25: Operating performance in line; lower tax outgo drives APAT beat

* Shipment volume stood at 957kt (flat YoY and 6% QoQ) against our estimate of 930kt. The growth was primarily fueled by higher beverage packaging, specialties, and aerospace, partially offset by lower automotive shipments.

* Novelis’ 4QFY25 revenue stood at USD4.6b (+13% YoY and +12% QoQ) against our estimate of USD4.4b, mainly driven by higher aluminum prices.

* Adjusted EBITDA stood at USD473m (-8% YoY and +29% QoQ) against our estimate of USD443m. EBITDA was primarily impacted by higher aluminum scrap prices and operating costs, partially offset by higher product pricing.

* Adj. EBITDA/t stood at USD494 (-9% YoY and +22% QoQ) vs. our estimate of USD476 during the quarter.

* APAT stood at USD294m in 4QFY25 (vs our estimate of USD162m), primarily driven by lower income tax outgo. Net Debt/EBITDA as of Mar’25 stood at 2.9x.

* For FY25, revenue grew 6% YoY to USD17.2b, while adj. EBITDA declined 3% YoY to USD1.8b and APAT dipped 1% to USD816m. Shipment stood at 3.76mt, registering a growth of 2% YoY during FY25.

Key highlights from the management commentary

Operating performance outlook

* Short-term demand outlook remains uncertain because of volatile market conditions caused by tariffs and trade tension.

* Management foresees potential difficulties in the automotive market, while strong tailwinds are expected in the specialty market.

* The average recycling rate stood at 63% (target to achieve 75%), whereas the ramp-up of the Guthrie 240kt and Ulsan 100kt recycling plants will lead to more absorption of scrap, increasing scrap consumption.

* The company expects stability in the scrap market as the withdrawal of the VAT subsidy by China has muted the Chinese export.

* If aluminum and scrap prices stay constant, the higher Midwest premiums would benefit Novelis' profitability.

* In 4QFY25, Novelis completed a new debt raising and refinancing transaction: a) USD750m in senior unsecured notes due Jan’30, and b) USD1.25b Term Loan B due Mar’32 (proceeds primarily used to repay earlier issued Term Loan A).

* The company has also announced a USD300m cost-cutting target by FY28E, out of which USD200mn will be through increasing operational efficiencies and the remaining through reduction in SG&A costs.

* The company is expecting a USD40m impact from the tariff announcements, which will reflect during 1QFY26E.

Capital Allocation Update

Some capacity enhancement projects are on track for commissioning in FY26: a) USD130m to debottleneck 65kt of rolling capacity in Oswego, US b) USD150m to debottleneck 80kt in Logan, US c) USD50m to debottleneck 30kt in Pinda, Brazil (following a previously completed 40kt expansion).

* Total capex in FY25 stood at USD1.69b, towards new rolling and recycling capacity. Management expects to spend ~USD1.9b-2.2b in FY26 and about USD300-350m for maintenance capex.

* The Bay Minette 600kt project remains on schedule for commissioning by 2HCY26. Novelis incurred ~USD1.6b as of FY25, out of the USD4.1b total announced capex for the Bay Minette.

Demand outlook:

* Volume outlook: FY26 is expected to see strong demand across the geographies, especially for the Beverage Can business, however, guidance is not provided owing to the price volatility and the current tariff situation.

* Cautious on the UBC scrap pricing going ahead. The company believes that the prices shall remain above the last 5-year average going forward.

* North America shipments were lower towards the automotive and beverage industries. EBITDA was hit by higher scrap prices, but offset by higher product prices.

* EU demand was robust for beverage packaging, higher specialty shipments, offset by lower automotive demand due to softer demand.

* The company foresees a 4% growth in the aluminum FRP market. Global beverage packaging demand remains strong.

* Asia beverage demand was strong, offset by lower automotive and specialty shipments. Higher volume and favorable FX supported EBITDA, offset by unfavorable product mix and higher operating costs.

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