Hindalco’s Q3 story: Novelis lags, while India holds up
Source: Live Mint
Hindalco Industries Ltd managed to sail through in the December quarter (Q3FY25). While its India business did well, the company’s US subsidiary Novelis remained under pressure, thanks to significantly higher aluminium scrap prices and an adverse product mix, which led to an 18% year-on-year drop in Ebitda. Note that about two-thirds of Novelis production capacity uses aluminium scrap as raw material, thus higher prices hurt profitability.
Nevertheless, Hindalco’s consolidated Ebitda, excluding other income, was up nearly 26% to ₹7,601 crore in Q3. Profitability was led by the company’s domestic upstream aluminium business where Ebitda jumped sharply by 73% to ₹4,200 crore aided by a substantial increase in realization– up nearly 24%.
What’s more, the segment’s profitability is expected to stay strong ahead, supported by high aluminium prices and stable input costs. Upstream aluminium and Novelis contributed 51% and 37.5% to Hindalco’s Q3 reported consolidated Ebitda, including other income.
A major chunk of the company’s remaining profit comes from its copper business, which saw an Ebitda growth of 18%, thanks to higher realization with continued domestic demand and lower imports. However, the management has lowered the copper segment’s quarterly run-rate profit guidance to ₹600 crore from FY26 from an average of ₹800 crore so far in FY25 as the business is expected to be adversely impacted due to lower refining margins.
Also Read: Why Hindalco is unfazed by Trump’s 25% aluminium tariff
Brighter days ahead?
Novelis is expected to recover hereon aided by higher volumes, favourable product mix and new contract pricing even as investors watch the impact of how the US tariffs play out. “The effect of tariff imposition by the US, if it happens, shall be neutral to positive for Novelis,” pointed out a Nuvama Institutional Equities report dated 14 February. In the earnings call, the management has indicated the bottoming out of scrap spreads. However, there seems to be a structural reset in scrap pricing.
Meanwhile, Novelis’ high capex needs have meant Hindalco’s consolidated net debt grew by 16% sequentially to ₹41,818 crore at Q3-end. Note that the India business continues to enjoy a net cash position. The company’s FY25 capex guidance stands at ₹6,000 crore, with ₹4,400 crore incurred in the nine months ended December (9MFY25). Hindalco’s consolidated net debt-to-Ebitda rose to 1.33x in Q3 from 1.19x in Q2 but can be expected to drop in the foreseeable future. “We expect net debt to fall marginally amid release of working capital in Q4FY25 with FY26 net debt at ₹37,000 crore (net debt/Ebitda at 1.1x),” said Nuvama’s analysts.
To be sure, elevated debt levels remain a concern for some analysts from a long-term perspective. In general, higher capex leads to higher net debt and higher interest outgo. In such a scenario, Ebitda needs to grow much faster to more than offset the rise in interest expenses. “Earlier, we expected (Hindalco’s) EPS to increase despite capex, but now see both lower earnings and higher capex. Hence, we see a limited possibility of an EPS increase in the next 2 years,” wrote Ambit Capital’s analysts in a report on 17 February. EPS is earnings per share.
Hindalco’s shares are down 22% from their 52-week highs of ₹772.65 apiece on 3 October. The stock trades at an enterprise value of about 6x FY26 estimated Ebitda, as per Bloomberg data. While the valuation does not look pricey, clarity on the US tariff decision and its impact on Novelis would be an important variable for the stock performance along with the trend in aluminium prices.
Also Read: America First gives an edge for Novelis in US
