After a strong performance by its US subsidiary, Novelis Inc., Hindalco Ltd also reported strong domestic performance. The firm base metal prices helped. Aluminium prices on the London Metal Exchange (LME) during Q4 averaged 9.3% higher sequentially (up 24% year-on-year or y-o-y) at $2,096 a tonne. A strong demand environment helped drive volumes.
Benefits accrued from rising sales of value-added products commanding higher margins. As aluminium metal sales rose 5% y-o-y, sales of value-added products (excluding wire rods) increased 21% y-o-y to a record 92,000 tonnes. Sales of these higher-margin products as a percentage of total sales improved to an all-time high of 28%. Not surprisingly, Ebitda (earnings before interest, taxes, depreciation and amortization) margins at 27% were the highest in the last 12 quarters. Copper business revenue grew 80% y-o-y, driven primarily by higher global prices. Overall copper metal sales grew 24.4% y-o-y. However, soft treatment and refining (TC/RC) margins meant that there were limited benefits on the segment’s operating performance.
The segment’s Ebitda improved 33% sequentially. However, not much uptick is expected in FY22 given the subdued TC/RC trend, say analysts. Hindalco continues getting major boost from Novelis Inc, its US subsidiary that now contributes over two-thirds to operating profit. Novelis posted its best-ever quarterly adjusted Ebitda of $505 million. This was attributed to higher organic volume, favourable metal benefits, and a $60 million Ebitda contribution from the acquired Aleris business. Demand for beverage cans, auto sheets and packaging products remains strong. The Aleris integration progressing well meant cost synergies run-rate worth a $79 million was achieved by Q4 end (total potential- about $120 million). The firm also saw Novelis’s global automotive finishing capacity expanding to 1 million tonnes.
With improved cash flows, Hindalco also has managed to cut debt meaningfully. Net debt fell by ₹14,883 crore as of 31 March from its peak on 30 June 2020. Consolidated net debt-to-Ebitda ratio improved significantly to 2.59 times as on 31 March from 3.83 times as on 30 June 2020. As the firm plans utilizing improved cash flows for more organic expansions, it expects leverage to fall below 2.5 times. Meanwhile, even as prospects look sound, all eyes are on the impact of the second wave of covid infections on aluminium demand and realizations. Company expects some impact on demand during April-May. Nevertheless, it is expecting rebound once the pandemic is brought under control. The company also expects firm aluminium prices for most of FY22.
