Shares of Hindalco tanked even after good results.

Shares of Hindalco tanked even after good results.

Hindalco reported an all-time high quarterly consolidated net profit for June 2022 at 4,119 crores, up 48% from the year-ago quarter of Rs.2784 crores. Its consolidated revenue rose to 58,018 crores as against 41,358 crores, up 40% YoY. The company reported an all-time high EBITDA of 8,640 crores, which was up 27% from the year ago quarter of 6,790 crores. Meanwhile, its net debt to EBITDA remained strong at 1.40x in Q1 FY23 compared to 2.36x in Q1 FY22.

The main reason for the downtrend

India’s aluminum cost increase of 17% from quarter to quarter was offset in the past quarter. Many investors expect the cumulative impact of inflation to show in Q2 FY23 EBITDA for the aluminium business. The net debt also increased by Rs. 3100 crores from quarter to quarter to Rs. 42200 crores. The stress is on account of compressing scrap, the impending housing sector downturn, and recent Ball Corp with the inflation-weakening demand for cans in North America.

The high margins and significant release of working capital as a result of falling aluminum prices would generate cash flow for Novelis in FY23.While India’s operation’s earnings would be under stress in the near term due to a fall in LME (London Metal Exchange) and high energy costs. We expect it to recover in Q3Y22 and onwards on the back of the restoration of coal supplies by Coal India NSE 0.14 % and stable LME.

The company believed the results were driven by an excellent performance by Novelis and strong performances by Aluminium Downstream and Copper businesses, supported by operational efficiencies and higher volumes. FuThe EBITDA and EBITDA per ton were high, mainly due to higher product pricing, favourable product mix, and recycling benefits. Seeing ahead, the main focus is on riding all market cycles with a greener, stronger, smarter approach.

The performance was backed by strong operational efficiencies and preemptive sourcing of critical raw materials, thus ensuring stable operations and higher margins. The business model supports their position as an integrated aluminium producer with the best EBITDA margins.

After delivering record profitability in the fourth quarter, they have delivered an even stronger first quarter despite rising input costs and inflationary pressures. The performance was because of operational efficiencies and cost-efficient sourcing of critical raw materials.

Valuations:

The EPS was at Rs.67.0 for June 2022. The Return on capital employed was at 16.2% and Return on Equity reported was at 18.5%. EVEBITDA stood at 4.57x for Q1 FY23 quarter. Price to book value was at 1.26x, whereas Return on Asset was at 6.52%. The shares of Hindalco were trading at Rs.435 down by 0.90% on Thursday.