Hindalco Q1FY23 Review: In Q1FY23, lower cost inventory supports healthy performance of Indian aluminium business

What's Buzzing:

Hindalco's India business reported a healthy performance in Q1FY23 wherein topline, EBITDA and PAT all came in higher than our estimates. For the quarter, the healthy performance of the India aluminium business was supported by utilisation of lower costs inventory, which resulted in lower costs for the quarter.

Context:

For Q1FY23, Hindalco's India business reported a topline of Rs 19733 crore, up 48% YoY. For the quarter, Indian aluminium business reported sales volume of 333000 tonnes, higher than our estimate of 320000 tonnes. For the quarter, Indian copper business reported sales volume of 101000 tonnes, marginally higher than our estimate of 100000 tonnes. For Q1FY23, Hindalco's Indian business EBITDA (business segment EBITDA) was at Rs 3995 crore, up 52% YoY but down 6% QoQ, notably higher than our estimate of Rs 2864 crore. Ensuing PAT of Hindalco’s India business for Q1FY23 was at Rs 1786 crore, up 72% YoY, higher than our estimate of Rs 1147 crore.

Our Perspective:

For the quarter, Hindalco's Indian aluminium business EBITDA was at Rs 3430 crore, up 45% YoY but down 12% QoQ, significantly higher than our estimate of Rs 2494 crore. Of the overall India aluminium business EBITDA, upstream aluminium business EBITDA was at Rs 3272 crore while downstream aluminium business EBITDA was at Rs 158 crore. For the quarter, Hindalco's Indian copper business EBITDA was at Rs 565 crore, up 116% YoY, 46% QoQ, higher than our estimate of Rs 370 crore. For the quarter, aluminium India business reported EBITDA/tonne (after adjusting for Intersegment profit/loss elimination and metal price lag) was at US$1291/tonne, notably higher than our estimate of US$950/tonne. During the quarter, Hindalco's Indian aluminium business was supported by utilisation of lower costs inventories which resulted in lower costs for the quarter. Going forward, for Q2FY22E, Hindalco's Indian business aluminium cost of production is expected to increase in mid-teens sequentially, which is expected to lead to downward pressure in Hindalco's Indian aluminium business EBITDA/tonne for Q2FY22E from Q1FY22 levels. However, from Q3FY23E, cost pressures are likely to ease, thereby auguring well for the company.