Hindalco down 2% as co sees headwinds for arm Novelis in FY24

Hindalco Industries said that Q3 of FY23 was a trough for subsidiary Novelis, but it expects headwinds to persist into FY24.

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Shares of Hindalco Industries dropped by two percent, making it the top loser on Nifty 50, in response to the company’s outlook that its subsidiary Novelis will continue to face headwinds in FY24.

As of 9:38 am, shares of the metal company were trading at Rs 399.20, down 0.8 percent, on the BSE.

The company said that Q3 of FY23 was a trough for subsidiary Novelis, but it expects the headwinds to persist into FY24. However, Hindalco pointed out that achieving $525 adjusted EBITDA per ton for its arm is still possible when the headwinds subside. Therefore, Novelis is expected to achieve its long-term sustainable EBITDA per ton guidance of $525 per ton by 4Q of FY24.

CLSA highlighted that Hindalco’s medium-term guidance is reiterated and capital expenditure is paced out. It has a ‘buy’ recommendation on the stock with a target price of Rs 550.

However, the foreign brokerage firm pointed out that details on factors driving weakness and key items to monitor for recovery were missing. It believes a bounce back in profitability is key to a rerating.

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There is an expectation of turnaround for arm Novelis in the March quarter with a favourable metal price lag and an improvement in shipments of cans. For the Indian business, the rise in the prices of aluminium and copper and better coal availability is expected to boost performance. “The worst is over,” Satish Pai, MD, Hindalco, had said after announcing the December quarter results.

Hindalco has remained the most favoured pick of analysts in March. Hindalco had 24 ‘buy’ calls, as per Moneycontrol’s Analyst Call Tracker for March.

Motilal Oswal Financial Services is of the view that Hindalco is adding downstream capacities at the right time to capture strong growth opportunities. “Despite near-term headwinds for Novelis, the long-term outlook remains positive.” It has retained its ‘buy’ rating with a cut in target price to Rs 510 from Rs 570.