Hindalco Industries Ltd’s PAT down 40.4% YoY

Company Overview:

Hindalco Industries Ltd, a part of the Aditya Birla Group, has been a significant player in the metal industry since its incorporation in 1958. The company’s diverse portfolio includes aluminum, copper, and specialty alumina (chemicals). Its operations span across bauxite and coal mining, aluminum rolling, and electricity generation through captive plants. Hindalco is renowned as the largest aluminum manufacturer in India and stands as Asia’s primary producer of primary aluminum, excluding China.

 Global Presence and Manufacturing Capacity:

With a robust presence in both the Indian and international markets, Hindalco operates in 10 countries, boasting 19 manufacturing units, 21 mining operations, and 33 overseas manufacturing facilities, with 17 of them featuring recycling capabilities. The company’s extensive operations are supported by a dedicated workforce exceeding 76,800 employees.

Domestic Aluminium and Copper Industry:

In Q1FY24, the domestic demand for the aluminum industry is projected to reach 1141 kt, showing a robust 14% YoY growth. This growth is driven by strong demand in electrical, building & construction, and consumer durables, although packaging and auto sectors faced challenges due to weak export markets. The copper market exhibited strong demand, with a 10% YoY increase at 190 kt compared to 173 kt in Q1FY23.

Performance Across Business Verticals:

Hindalco’s subsidiary, Novelis Business, reported a decrease in shipments to 879 kt in Q1FY24, primarily due to lower beverage can and specialties shipments, particularly in building & construction. However, EBITDA/t improved by 11% QoQ to 479 $/ton due to effective cost control, a favorable product mix, and record automotive shipments. Net sales decreased by 7% QoQ to $4.1 billion due to lower average aluminum prices and shipments. The shipment breakdown comprises 54% for cans, 23% for automotive, 20% for specialties, and 3% for aerospace.

In the Aluminum Upstream Business, production and shipments both grew by 1% and 5% QoQ to 331 kt and 341 kt, respectively. Revenue remained nearly flat at 8,064 Cr due to lower metal prices offset by higher shipments, while EBITDA decreased by 12% QoQ to 1,935 Cr with margins at 24%.

The Aluminum Downstream Business reported flat production at 84 kt and a 9% QoQ decrease in shipments due to a slow start in April. Revenue fell by 11% QoQ to 2,435 Cr, while EBITDA increased by 31% QoQ to 147 Cr, attributed to a better product mix.

In the Copper Business, cathode production decreased by 32% QoQ to 71 kt due to scheduled maintenance shutdowns, while copper rod production increased by 5% QoQ to 95 kt, with record-high metal shipments of 118 kt. Revenue increased by 3% QoQ to 11,502 Cr, driven by higher shipments, while EBITDA decreased by 11% QoQ due to lower cathode production during maintenance shutdowns.

Valuation and Key Ratios:

The company’s stock is currently trading at a multiple of 12.7x FY23 at 37.5 Rs, with a current market price of 478 Rs, while the industry PE stands at 22 Rs. The stock is trading at 1.13 times its book value of 422 per share. Hindalco demonstrates moderate return ratios, with ROE at 11.7% and ROCE at 11.3%. The interest coverage ratio is strong at 3.76x, indicating high solvency efficiency, with earnings three times higher than interest costs. EV/EBITDA stands at 7.17x.

Q1FY24 Results Update: Consolidated

Consolidated revenue decreased by 8.7% YoY (-5.1% QoQ) to 52,991 Cr due to declines in three verticals, except for copper, which saw a 9.2% YoY growth. EBITDA grew by 5% QoQ to 6,109 Cr, with EBITDA margins up by 110 bps to 11.5% due to improved cost control and a favorable product mix. EBIT decreased by 37.3% YoY but increased by 9.1% QoQ to 4,323 Cr, primarily due to lower depreciation costs. PAT decreased by 40.4% YoY (+1.8% QoQ) to 2,454 Cr, influenced by a 101% QoQ increase in taxes and reported exceptional items of 41 Cr. Earnings per share for the quarter stood at 11.1 Rs (PQ-10.8 Rs), marking a 40% YoY decline (+2.3% QoQ).

Conclusions:

Hindalco Industries Ltd. continues to be a dominant player in the metal industry, with a significant presence both domestically and internationally. While facing challenges in certain sectors, the company has displayed resilience and adaptability in its Q1FY24 results. Hindalco’s ability to manage costs, maintain a strong workforce, and navigate changing market dynamics will likely be key factors in its future performance and valuation.