Hindalco (Novelis) Q1FY23 Review: Healthy performance; upward revises EBITDA/tonne guidance

What’s Buzzing:

Hindalco's subsidiary Novelis reported a healthy operational performance for Q1FY23. For the quarter, Novelis EBITDA/tonne was at US$ 583/tonne, notably higher than our estimate our US$500/tonne. Aided by healthy EBITDA/tonne, for the quarter Novelis reported record adjusted EBITDA of US$ 561 million.

Context:

For Q1FY23, Novelis' net sales increased 32% YoY to US$5.1 billion, primarily driven by higher average aluminium prices and local market premiums. For the quarter, adjusted EBITDA increased 1% YoY to a record US$ 561 million compared to US$555 million in the prior year period which included a $47 million gain related to a favourable decision in a Brazilian tax litigation. Adjusted EBITDA was up 10% YoY excluding the favourable decision in Brazilian tax litigation in prior year. Ensuing net income from continuing operations increased 1% YoY to US$307 million. Excluding special items in both years, Q1FY23 net income from continuing operations increased 18% YoY to US$307 million.

Our Perspective:

Hindalco's wholly owned subsidiary Novelis, reported healthy operational performance for Q1FY23 wherein adjusted EBITDA/tonne was at US$583/tonne notably higher than our estimate of US$500/tonne. However, shipments for the quarter were at 962 KT, marginally lower than our estimate of 985 KT. Shipments were lower than our estimate, mainly due to supply chain constraints. Aided by better than expected adjusted EBITDA/tonne, Novelis Q1FY23 adjusted EBITDA came in significantly higher than our estimate. For the quarter, Novelis adjusted EBITDA for the quarter was at US$561 million compared to our estimate of US$493 million. The underlying increase in adjusted EBITDA is primarily due to higher product pricing, including some higher cost pass-through to customers, favourable product mix on improved automotive and aerospace shipments and lower metal costs due to improved recycling performance, partially offset by high cost inflation and unfavourable foreign exchange translation. Novelis has also upward revised its FY23 EBITDA/tonne guidance to US$ 525/tonne from US$ 500/tonne earlier.