Why Hindalco Share Price is Falling

The aluminum sector in India plays a vital role in supporting industries like automotive, construction, and electrical. Over the years, rising demand has made it an attractive sector for investors.

However, the sector remains vulnerable to global price fluctuations, demand shifts, and supply-chain disruptions.

Hindalco Industries, one of India's largest aluminum and copper producers, stands out as a key player. It operates across the metals spectrum, producing aluminum products and copper components.

Its reach extends internationally through its subsidiary Novelis, a major player in aluminum rolling and recycling.

Hindalco's performance is often tied not only to its own operational results but also to the results of Novelis. Any challenges or successes at Novelis directly impact Hindalco's valuation.

Today, Hindalco share price come under significant pressure, sliding 8.4% after Novelis posted its quarterly results. This drop highlights the connection between Hindalco and its subsidiary's financial performance.

Let's take a look at Novelis' quarterly results to understand the factors leading to Hindalco's recent share price decline.

Subsidiary's Weak Results

Hindalco share price declined following disappointing quarterly results from its wholly-owned subsidiary, Novelis, which reported weaker financials across key metrics.

Net income for Novelis attributable to shareholders fell by 18% year-over-year (YoY) to US $ 128 million (m). This decline highlights reduced profitability, likely impacted by higher costs or reduced operational efficiency.

Adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) stood at US$ 462 m, down by 5% from the previous year, though it rose by 1% after factoring out a US$ 25 m loss due to flooding in Sierre.

This dip in EBITDA reflects pressures on profitability, further strained by the flooding impact.

Despite these challenges, Novelis recorded a 5% increase in net sales, reaching US $4.3 billion (bn). This rise was largely driven by elevated aluminum prices and a 1% increase in flat-rolled product shipments, totaling 945 kilo tonnes.

However, this sales boost was not enough to offset the profitability decline as operational costs, particularly in scrap metal, rose.

The US$ 25 m hit due to Sierre flooding, combined with unfavourable factors like reduced automotive shipments and higher scrap prices, further impacted EBITDA per tonne.

Although some price increases helped offset the automotive shipment decline, the overall mix was less favorable.

Given that Novelis contributes about 67% of Hindalco's EBITDA, these results had a notable impact on Hindalco's stock.

In addition, Novelis reported a rise in net debt, reaching US$ 4.8 bn by the end of the quarter, up from US$ 4.6 bn in June. This increase suggests higher borrowing or debt-financed operations, adding financial strain.

A significant factor behind Hindalco's share decline was Novelis' decision to withdraw its short-term EBITDA per tonne guidance of US$ 525.

Novelis cited tighter scrap spreads due to accelerated scrap purchases by China, which lifted prices following relaxed policies. This decision to suspend guidance has raised investor concerns, as it indicates potential earnings volatility.

Overall, Hindalco share price has dropped due to Novelis' weaker-than-expected performance, higher costs, and the uncertainty following the suspension of EBITDA guidance.

What Next?

Hindalco faces a period of challenges, with Novelis' performance impacting its short-term growth. Novelis has projected that headwinds from high aluminium scrap prices will likely continue through the current and upcoming March quarters.

These rising costs, along with seasonally weaker demand in the December quarter, are expected to create some volatility for the company's near-term growth prospects.

Looking ahead, Hindalco has outlined a clear commitment to sustainable practices. The company has set an ambitious goal to achieve carbon neutrality by 2050.

In FY24 sustainability report, Hindalco highlighted the progress made toward this target, including a 63% average recycled content rate in its products, which is among the highest in the industry.

This emphasis on sustainability not only aligns with global environmental trends but also meets the increasing demand from customers for high-recycled, low-carbon aluminium products.

In addition to sustainability, Hindalco is focused on expanding its presence in high-growth sectors like automotive and packaging, where demand for lightweight and environmentally friendly aluminium solutions is rising.

Leveraging its position in these sectors could help Hindalco capture new markets and offset pressures from rising raw material costs. The company's investments in innovation and advanced recycling technologies are key to supporting these growth ambitions.

With these strategies, Hindalco aims to strengthen its market position and drive long-term growth.

However, persistent cost pressures and fluctuating market demand could impact its short-term performance.

How Hindalco Share Price has Performed Recently

In the past five days, Hindalco share price tumbled 4.1%. In the last month, it is down 10.9%.

In 2024, so far it is up 6.7%. Additionally, it has rallied 34.4% in the past year.

The stock touched its 52-week high of Rs 772 on 3 October 2024 and a 52-week low of Rs 478.5 on 8 November 2023.

About Hindalco

Hindalco Industries is an Indian aluminium and copper manufacturing company. The company is a subsidiary of the Aditya Birla Group.

Hindalco is the largest aluminium rolling and recycling corporation in the world, as well as a major copper player. It is also one of Asia's top primary aluminium producers.

Building and construction, auto-motives, packaging, electrical, consumer durables, refractories, and ceramics are some of the industries it serves.

Along with its global subsidiary Novelis Inc., Hindalco has a presence in 12 countries. From bauxite mining to alumina refinement, aluminium smelting, rolling, and extrusions, the company engages in a wide range of operations.

For more details about the company, you can have a look at Hindalco's Fact sheet and its quarterly result.

You can also compare Hindalco with its peers.

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