Novelis net income dips 27% YoY to $156 mn in Q4; buy or sell Hindalco shares?

Novelis is a leading sustainable aluminum solutions provider and the world leader in aluminum rolling and recycling.

In Q4FY23, Novelis’ net income decreased 27% versus the prior year to $156 million in the fourth quarter of fiscal year 2023, mainly due to lower adjusted EBITDA, as well as pr, and favorable metal price lag in the prior year that did not recur.

Also, net income from continuing operations, excluding special items, decreased by 7% versus the prior year to $175 million.

Further, Novelis posted adjusted EBITDA of $403 million down by 6% YoY, driven by less favorable metal benefits from recycling, higher energy costs and other cost inflation, and lower volume, partially offset by higher product pricing and favorable product mix.

Read here: L&T Q4 results: Consolidated PAT rises 10% YoY to ₹3,987 cr, declares dividend of ₹24 per share

Meanwhile, net sales dipped by 9% YoY to $4.4 billion for the fourth quarter, primarily driven by lower average aluminum prices and a 5% decrease in total flat rolled product shipments to 936 kilotonnes, partially offset by increased product pricing and favorable product mix.

As per the financial statement, the decrease in shipments is mainly due to lower beverage can shipments driven by short-term headwinds, primarily customer inventory reduction actions, as well as macroeconomic impacts on specialties products, mainly in building & construction. Partially offsetting these declines were higher aerospace shipments, and record automotive shipments due to higher OEM build rates driven by pent-up demand.

Steve Fisher, President and CEO, of Novelis Inc, said, “Novelis continues to deliver solid performance in a challenging environment, enabled by our diversified product mix, operational efficiencies, and financial discipline.”

Overall, in FY23, the shipments stood at 3,790 kilo tonnes, down 2% YoY. Net income was at $658 million, down 31% YoY. Adjusted EBITDA of $1.8 billion, down 11% YoY. Net sales increased 8% to $18.5 billion in fiscal year 2023.

Further, Dev Ahuja, Executive Vice President and CFO, Novelis said, “While our results continue to be muted by near-term challenges, we have demonstrated that our business is resilient, with fourth quarter Adjusted EBITDA per ton improving significantly on a sequential basis compared to the third quarter and very strong free cash flow generation even as we increase capital investments for future growth.”

Ahuja said, Novelis is well-positioned to navigate current market headwinds and will continue to maintain a disciplined approach to managing cash efficiently as the company embarks on its next phase of transformational growth.

Also, Fisher said, “While macroeconomic headwinds are muting near-term performance, we believe these are transitory and that the long-term market outlook for our business remains robust. With our market-leading position and strong balance sheet, we remain committed to our transformational organic growth plan to further our position as a leading global provider of low-carbon, sustainable aluminum solutions.”

Hindalco is among the parent companies of Novelis. On BSE, Hindalco’s share price closed at ₹436.25 apiece down by 0.93% on Wednesday.

On Novelis Q4 results, Tushar Chaudhari – Research Analyst, Prabhudas Lilladher said, “Novelis reported 4QFY23 adjusted EBITDA of USD431/t (up 15% QoQ; -1% YoY); largely in-line with the guidance given earlier. FRP Volumes declined 5% YoY (up 3% QoQ) to 936kt while average realization declined 4% YoY (up 2% QoQ) to USD4,698/t.”

He said management expects volumes to remain soft in 1HFY24 led by destocking in beverage packaging and weakness in cyclical end markets. Automotive segment demand remains strong led by easing supply chain issues and pent-up demand while Aerospace demand also remains strong due to strong growth in aircraft build rates.

Following this, Chaudhari said that Hindalco remains one of the preferred plays in metal space. However, he did not recommend any buy or sell but said that the stock is trading at an attractive valuation.

The analyst said, “HNDL remains one of our preferred play in metals space given a) Novelis performance is expected to improve gradually; b) improving trajectory for India aluminum business given subsided cost inflation YoY and improving volumes from high-value downstream businesses; c) enhanced resource securitization in long term and significant correction in coal prices to benefit in near term. At CMP the stock is trading at attractive valuations of ~5.4x EV of FY24E EBITDA.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.