Hindalco Industries Ltd.'s Managing Director Satish Pai expects U.S.-based downstream subsidiary Novelis to bounce back in the ongoing first quarter compared to its upstream Indian aluminium business given the correction in prices of the alloy.
In the quarter ended March, The Indian business, largely comprising aluminum smelted from ore, reported operating income higher than Novelis, which makes value-added aluminium used for beverage cans to automobies.
But Pai expressed concerns over the availability of coal as a concern for the aluminum division. He expects a mid-teen cost inflation over the previous quarter for the division.
Focus On Expansion
The debt repayment plan for the Indian business stands more or less completed and the company would be paying Rs 6,500 crore worth of outstanding bonds payments this year, Pai told BQ Prime in an interview.
According to Pai, a large part of free cash flow would go towards organic expansion. The company would be paying a dividend of 8-10% of the profit, after adjusting for maintenance capex to the shareholders, Pai said.
India imposed export duty on steel as part of its measures to contain inflation. According to Pai, similar duty on aluminium won't make a difference. The local aluminum market has been oversupplied, and export realisation is lower than that of the domestic industry.
Here's what brokerages have to say about Hindalco's Q4:
CLSA
Maintain 'buy'; target price of Rs 580.
In-line results; headwinds are priced in.
Cut FY23-24 Ebitda by 3-9% on change in domestic aluminum profitability.
Valuation offers attractive risk reward; debt unlikely to rise from current levels.
Jefferies
Retain 'hold'; target price of Rs 440 compared to Rs 475 earlier.
Hindalco's Q4 Ebitda fell 1% quarter-on-quarter (+29% year-over-year) but was 4% above Jefferies estimates.
India aluminum margins have peaked as spot aluminum is already 13% below Q4.
After two strong years, we expect Ebitda and EPS to fall 6-13% YoY in FY23.
Stock is trading above long-term average price to book ratio despite deteriorating global outlook.
Believe it's too early to turn constructive.
JP Morgan
Remain 'overweight'; target price cut to Rs 565 from Rs 600 per share.
Hindalco's underperformance year-to-date vs global peers across upstream and downstream is not justified.
Still expect strong earnings and cash flows with likely improvement at Novelis.
Q4 strong even as costs surge.
Caught between recession and inflation worries.
Do not expect any immediate export tax on aluminum.
Expect potential policy action to be an overhang across stocks.
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