Hindalco Shares Gain Despite Us Arm Novelis' Weak Q3 Business Update; Clsa Maintains 'outperform'

Hindalco shares gain despite US-arm Novelis’ weak Q3 business update; CLSA maintains ‘outperform’

Hindalco Shares Gain on Positive Sentiment Despite Novelis’ Weak Q3 Update

Hindalco Industries, a flagship company of the Aditya Birla Group, saw its shares rise by as much as 2% to ₹597 in early trade on January 9. This comes after its fully-owned subsidiary, Novelis, issued a preliminary business update for the third quarter of FY25.

Novelis, a key downstream arm of Hindalco, reported that its adjusted Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) is expected to fall between $360 million and $370 million. This is a notable drop compared to the $454 million EBITDA reported in the same period last year. The decline reflects ongoing challenges, including higher scrap prices and an unfavorable product mix.

Shipments during the quarter are estimated at 900,000–910,000 tonnes, maintaining levels from Q3FY24. However, the EBITDA per tonne is forecasted to drop significantly to $400–$407, down from $499 in the previous year.


Optimistic Outlook for Q4

Despite the Q3 struggles, Novelis’ management remains optimistic about the near future. The company expects a strong recovery in the fourth quarter, with EBITDA per tonne forecasted to rebound to $480–$490, mirroring Q2FY25 levels. This projection aligns with expectations for an improved product mix and operational recovery.


CLSA’s Positive Stance on Hindalco

Global brokerage CLSA has maintained its ‘outperform’ rating on Hindalco with a target price of ₹800 per share, reflecting significant upside potential. While Novelis’ weaker performance was anticipated due to the ongoing correction in scrap spreads, CLSA believes the stock’s recent correction more than reflects these challenges. Hindalco’s shares have declined by nearly 19% over the past three months.

CLSA remains confident in Hindalco’s ability to navigate short-term challenges. It highlighted the company’s robust domestic operations, supported by resilient aluminium prices and its efficient low-cost structure. The brokerage expects Novelis’ profitability to recover as volumes stabilize, even under weak-spread conditions.


Challenges Faced by Novelis

Novelis has faced several hurdles, including higher scrap prices, production interruptions at its Sierre plant, and an unfavorable product mix. In the July–September quarter of FY25, Novelis posted an 18% decline in net income to $128 million, impacted by a $61 million charge related to the Sierre plant issues and higher restructuring expenses.


At 9:50 am on January 9, Hindalco shares were trading at ₹592, registering a 1% increase from the previous closing price on the NSE. This comes amidst challenging circumstances, including a weak Q3 performance by its US-based subsidiary, Novelis. Despite the hurdles, Hindalco’s resilience in the market reflects its solid domestic operations and continued investor confidence bolstered by positive broker sentiment.

The company’s robust domestic business, supported by stable aluminium prices and a cost-efficient structure, has helped it navigate short-term challenges. Additionally, Hindalco’s strategic emphasis on downstream operations enhances its ability to deliver consistent performance in fluctuating market conditions. These strengths position the company to sustain long-term growth even in the face of global economic uncertainties.

Looking ahead, the anticipated rebound in Novelis’ Q4 performance is likely to strengthen Hindalco’s financial outlook. With Novelis projecting an improved EBITDA per tonne, investor confidence in Hindalco is expected to rise further. This recovery, combined with the company’s focus on operational efficiency, underscores its potential to emerge stronger in the coming quarters.


Key Takeaways

  • Hindalco shares gained 2% despite Novelis’ weak Q3 performance.
  • Novelis’ Q3 EBITDA is projected to decline to $360–$370 million.
  • CLSA maintains an ‘outperform’ rating with a target price of ₹800 per share.
  • Novelis expects a strong recovery in Q4 with EBITDA per tonne rebounding to $480–$490.
  • Hindalco’s domestic operations remain strong, supported by resilient aluminium prices.

Hindalco’s ability to weather short-term challenges and focus on its long-term growth trajectory makes it an attractive proposition for investors, even in a volatile market environment.

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