Novelis Surpasses EBITDA Targets, Boosting Parent Company's Prospects

Novelis, a subsidiary of the Aditya Birla Group's Hindalco, has achieved its guided operating profit or EBITDA per tonne level well ahead of schedule. This development is poised to put shares of Hindalco in the spotlight on Wednesday.

Novelis had set its sights on achieving an EBITDA per tonne above $500 by the March quarter of the financial year 2024. Remarkably, it surpassed this target by achieving a figure of $519 two quarters earlier than anticipated. This subsidiary is a significant contributor, accounting for more than 70% of Hindalco's consolidated operating profit or EBITDA.

The remarkable improvement in EBITDA per tonne can be attributed to the subsidiary's performance in Europe, where the metric surged by an impressive 44% from the previous year, reaching $391. In North America, EBITDA per tonne also saw a healthy 8% year-on-year increase.

Looking ahead, Novelis has set its sights on an EBITDA per tonne ranging between $450 and $500 for the December quarter. For the final quarter of the financial year, the company envisions this figure to climb to $525.

However, the recent performance wasn't without its challenges. In the September quarter, both net sales and net profit from continuing operations for Novelis dropped by 14% each compared to the same period the previous year, amounting to $4.1 billion and $157 million, respectively. Operating profit or EBITDA also saw a slight decline from last year, falling to $484 million from $506 million, although it did improve compared to the figures in the June quarter, which stood at $421 million.

The good news is that Novelis has seen a 6% sequential improvement in volumes, as the process of de-stocking largely concluded. De-stocking refers to the practice of reducing the amount of stock held or refusing to stock certain products. This improvement in volumes was driven by operating leverage and efficiencies, along with more favourable metal price spreads.

Nevertheless, Novelis remains cautious about the speciality segment due to the uncertain macroeconomic environment.

It is worth noting that Hindalco's shares have gained 3% in the past month, but they need to trade above the Rs 487.05 mark to enter positive territory for 2023. The stock was trading with minor gains of 0.2% at Rs 486 per share as of 10:20 am.