Hindalco Industries witnessed a significant 14% decline in its stock during morning trades on Tuesday, following the Q3 results announcement by its US subsidiary, Novelis. While the financials aligned with expectations, the disappointment stemmed from the revised Capex guidance and extended timeline for a key growth project.
Analysts at Kotak Institutional Equities noted that Novelis’ 3QFY24 adjusted EBITDA met expectations, with improved demand in America, although Europe and Asia faced continued pressure. The company, however, raised the capex for its North American greenfield expansion project by 65% to $4.1 billion (previously $2.5 billion) and delayed the timeline to end-FY2027. Return guidance from ‘midteens’ to ‘double digits’ added to the concerns, impacting the growth, earnings, and return prospects for the next five years.
In terms of financial performance, Novelis reported a net income of $121 million attributable to common shareholders, a notable increase from $12 million in the same period last year. However, net sales declined by 6% YoY to $3.9 billion in Q3 FY2024, primarily due to lower average aluminum prices, though flat rolled product shipments remained steady at 910 kilotonnes.
The decline in specialty product shipments was offset by growth in automotive shipments and renewed demand for beverage packaging sheets. Despite a 33% increase in adjusted EBITDA per tonne to $499, sequential comparisons showed a decline from $519 in the previous quarter. The management anticipates Q4FY24 adjusted EBITDA per tonne to stabilize around $525.
This stock downturn post Novelis Q3 results raises concerns about Hindalco’s strategic decisions, prompting investors to reevaluate their positions amidst the evolving market dynamics.