Hindalco Q2 Results: Net Profit Rises 78% & Announces $4-5 Billion Capex for Upstream Expansion
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Hindalco Q2 Results
Hindalco Q2 Results: Net Profit Rises 78% & Announces $4-5 Billion Capex for Upstream Expansion
Hindalco Industries posted impressive Q2 results, with net profit rising 78% to ₹3,909 crore for the quarter ending September 30, 2024, surpassing analyst expectations of ₹3,254.5 crore. Revenue from operations increased by 7% to ₹58,203 crore, driven by higher volumes and lower input costs, contributing to consolidated EBITDA growth of 49% year-on-year (YoY) to ₹9,100 crore.
Key Financial Highlights
- Revenue Growth
- Total revenue increased to ₹58,203 crore, up 7% from ₹54,169 crore in Q2 FY24.
- Quarterly revenue from the copper India business reached ₹13,114 crore, a 5% increase, supported by higher shipments and realizations.
- Profit and Earnings
- Net profit stood at ₹3,909 crore, a 78% YoY increase from ₹3,298 crore.
- EBITDA growth was driven by lower input costs and higher volumes, as Hindalco capitalized on domestic demand for electricals, packaging, and infrastructure.
- Aluminum and Copper Segments
- Aluminum upstream revenue increased by 79% YoY, while aluminum downstream saw a slight decline of 1% to ₹154 crore.
- Domestic demand for aluminum is strong, with 66% of sales in India and 34% in exports, according to Managing Director Satish Pai.
Capex and Expansion Plans
Hindalco announced a $4-5 billion capital expenditure plan over the next three years to expand upstream operations, focusing on aluminum smelters, alumina refineries, and copper recycling facilities. The company aims to invest $1-1.5 billion per year, funded through internal accruals and additional debt, which may reach ₹7,000-8,000 crore. This investment includes both greenfield and brownfield projects, including a copper smelter expansion and a new alumina refinery.
Satish Pai, Managing Director, commented, “With a strong balance sheet and robust domestic demand, we’re shifting our focus to upstream aluminum and copper to drive growth.”
Novelis Performance and Future Outlook
Hindalco’s US-based subsidiary, Novelis, faced challenges this quarter, with net income declining by 18% due to production interruptions at its Sierre plant, higher restructuring costs, and lower operating performance. Novelis’ EBITDA per tonne stood at $489, impacted by tightened scrap spreads and an unfavorable product mix. This led to Novelis withdrawing its IPO, initially planned for June 2024, due to market conditions and a bleak outlook for the next few quarters.
Commenting on Novelis’ outlook, Pai said, “The next few quarters will be challenging due to tightening scrap spreads. We’ve implemented measures to optimize scrap mix, but we’ll be cautious about further actions until market conditions improve.”
Market Reaction and Analyst Views
Hindalco’s stock rose marginally by 0.71% to ₹655.05 on the NSE following the Q2 results. While domestic growth prospects remain strong, some analysts are cautious about Novelis’ near-term performance. Emkay Global downgraded Hindalco to ‘sell’ from ‘reduce,’ citing concerns over Novelis’ profit trajectory due to tightened scrap spreads and the impact of China’s aluminum scrap import liberalization.
Emkay Global analysts noted, “The tightening scrap spreads create a near-term overhang for Hindalco’s stock, and we’re cautious about its EBITDA trajectory in light of Novelis’ challenges.”
Conclusion
Hindalco’s Q2 results reflect robust domestic demand and successful cost management, with a strong growth strategy through upstream investments in aluminum and copper. However, the challenges facing Novelis, particularly around scrap costs and market conditions, suggest a mixed outlook for the company. Hindalco’s focused investments in upstream expansion, alongside strong fundamentals, offer promising long-term growth, though Novelis’ near-term difficulties could weigh on stock performance.
FAQs
Q1: What drove Hindalco’s strong Q2 performance?
The profit growth was mainly due to lower input costs, increased volumes, and strong domestic demand for aluminum and copper products.
Q2: How much will Hindalco invest in upstream expansion?
Hindalco plans a $4-5 billion investment over three years, focusing on aluminum smelters, alumina refineries, and copper recycling facilities.
Q3: What challenges is Novelis facing?
Novelis is dealing with tightened scrap spreads, production interruptions, and an unfavorable product mix, impacting profitability.
Q4: How will Hindalco fund its capital expenditure?
The capex will be funded through a combination of internal accruals and additional debt, with debt expected to reach ₹7,000-8,000 crore.
Q5: Why did Hindalco’s share price only rise slightly after strong results?
While Hindalco’s core business performed well, analysts are cautious about Novelis’ near-term outlook, which could affect overall stock performance.
Hindalco Q2 Results
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