Hindalco plummets as subsidiary’s client cuts forecast

For Hindalco, this is a negative given the large contribution of the subsidiary in consolidated earnings

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Shares of Hindalco nosedived on September 26 after one of the biggest clients of subsidiary Novelis Corporation cut its earnings outlook due to ongoing slowdown in the global economy.

Ball Corporation, one of the largest beverage can makers in the US, slashed its five-year volume growth outlook for North America citing weak demand conditions. The company also highlighted that volumes for beverage cans could get weaker in the short term due to the impending recession in the US and falling aluminium prices.

According to brokerage firm Jefferies, Ball Corporation is the largest customer of Novelis. The cut in volume guidance by Ball Corporation could materially dent the earnings prospects of Novelis in the coming quarters.

Jefferies has maintained its ‘hold’ rating and price target of Rs 390 for Hindalco’s shares listed on the National Stock Exchange (NSE).

Ball Corporation has cut its volume growth outlook for the North American market to two to four percent from four to six percent while the same for the Southern American market has been trimmed to four to seven percent from five to eight percent earlier.

At the end of the June quarter, Novelis Corporation had given a fairly robust outlook on demand and profitability. “Customers continue to request increased volumes in all regions driven by package mix shift driven by preference for sustainable beverage packaging options,” Novelis had said in August.

The deterioration in the volume outlook for beverage cans, which account for 58 percent of Novelis’ shipments, comes at a time when the company is embarking on a five-year capacity expansion phase.

The company has identified around $4.5 billion of investment potential of which over $3 billion of capacity expansion is already underway.

In its home market, Hindalco is battling weakening pricing environment because of an overall correction in global aluminium prices over the past few months.

At 10:13 am, shares of Hindalco were down 5.6 percent at Rs 374 on the NSE.

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