Hindalco US Subsidiary Novelis Expects Near-Term Cash Flow Impact On Possible US Tariffs
Novelis, a US subsidiary of Hindalco, will likely apply for exemptions and expects mitigation through Midwest premium pricing.
Novelis Inc., the US subsidiary of Hindalco Industries Ltd., may face some near-term impact on its cash flow if the Donald Trump-led administration decides on an act of tariffs, the company said during their earnings call on Monday, adding that the impact, however, would likely be offset via the premium it charges in the Midwest.
The company is likely to apply for an exemption from the expected Trump's tariff plans. Novelis accounted for 61% of Hindalco’s revenue and also contributed to 56% of its Ebitda in the previous financial year.
The company reported a year-on-year increase of 4% in net sales, taking the tally to $4.1 billion, but the total flat-rolled product shipments stayed the same at 904 kilotons in comparison to 910 kilotons from last year. While the beverage packaging business saw the upside due to higher demand, the overall growth was impacted due to lower shipments in the automotive and speciality segments.
Novelis, however, remains optimistic that the growth in beverage packaging shipments will offset the muted speciality and Europe and China automotive segments.
However, the company's profitability took a hit with adjusted Ebitda declining 19% year-on-year to $367 million. Additionally, the adjusted Ebitda per tonne also fell by 19% to $406.
One of the key reasons for this decline in profitability was higher scrap prices, which significantly impacted margins. Additionally, an unfavourable product mix further pressured earnings. The company also faced maintenance shutdowns, which contributed to weaker performance in the October-December quarter.
Besides, credit ratings agency Moody's also mentioned on Monday that after the US decision to impose an additional 25% tariff on all steel and aluminium imports, Indian steel producers will feel the heat in exporting their products.
Looking ahead, Novelis expects a better performance in the January-March quarter compared to the preceding quarter. The company anticipates seasonally higher volumes, a more favourable product mix, and benefits from new contract pricing.
Favourable metal pricing is also expected to support growth. Management believes that these factors will help performance in the fourth quarter to be comparable to the second quarter.
