Hindalco Industries, a prominent player in the metals sector, experienced a significant drop in its share price, plummeting by 14% during the morning trading session on Tuesday. This downward spiral was triggered by the quarterly financial announcement from its American subsidiary, Novelis. Despite Novelis reporting a substantial increase in net income attributable to common shareholders, rising to $121 million from the previous year’s $12 million, it was the updated capital expenditure (capex) projections and extended project timelines that led to investor apprehension.
Novelis, in its financial performance for the third quarter of the fiscal year 2024, aligned with the projections set by analysts, showcasing an adjusted EBITDA that met expectations. The demand outlook in the Americas showed signs of improvement, yet Europe and Asia continue to face challenges, as noted by analysts from Kotak Institutional Equities. Nonetheless, it was the revision in the capex for a significant growth initiative—a greenfield expansion in North America—that caught the market off guard. The capex for this project was adjusted upwards by 65%, escalating to $4.1 billion from the initially estimated $2.5 billion, with the completion timeline also being pushed back by a year to the end of the fiscal year 2027.
The revision in the project’s return expectations further contributed to the unease among investors and analysts. Previously anticipated returns were scaled down from the ‘mid-teens’ to ‘double digits,’ according to insights from Kotak analysts. This adjustment reflects concerns over cost inflation and delays, which, while not affecting the explicit earnings forecast up until the fiscal year 2026, undoubtedly cast a shadow over the long-term growth, earnings, and return prospects of the company.
In a closer look at Novelis’ financial metrics, the company’s net sales saw a 6% year-on-year decline, totaling $3.9 billion for the third quarter of the fiscal year 2024. This decrease was attributed to lower average aluminum prices, even though shipment volumes remained steady. The total flat rolled product shipments stood at 910 kilotonnes, marginally up from 908 kilotonnes in the corresponding period of the previous year.
The unchanged shipment volumes were a result of a dip in specialty product shipments, adversely affected by sluggish economic conditions in certain markets. However, this downturn was somewhat offset by a surge in automotive shipments and a resurgence in demand for beverage packaging sheets, underscoring the mixed demand dynamics across different product categories.
Furthermore, the adjusted EBITDA per tonne for Novelis showcased a 33% increase, reaching $499 per tonne. However, it is noteworthy that this figure presented a sequential decline from $519 per tonne in the preceding quarter. This nuanced financial performance paints a picture of the challenges and opportunities faced by the company in a fluctuating market environment.
Looking ahead, Novelis’ management has set an optimistic expectation for the adjusted EBITDA per tonne, forecasting a rebound to approximately $525 in the fourth quarter of the fiscal year 2024. This projection indicates a confidence in the company’s ability to navigate through the prevailing market conditions and leverage potential growth opportunities.
The developments at Novelis and the consequent impact on Hindalco Industries’ stock price underscore the intricate relationship between strategic investments, market expectations, and investor sentiment. As the company navigates through these challenges, the adjustments in capex and project timelines reflect a strategic recalibration aimed at optimizing long-term value amidst evolving market dynamics.
In related news, Steel Authority of India Limited (SAIL) witnessed a 5% decline in its share price following a 22% drop in its quarterly profit, indicating a broader trend of market sensitivity to corporate financial performances. Additionally, the hospitality firm OYO, led by Ritesh Agarwal, is reportedly accelerating its initial public offering (IPO) plans following a surge in profits, highlighting the diverse strategies companies are adopting in response to their financial health and market opportunities.