Hindalco Arm Novelis Q2 Results Review - Scrap Concerns Weigh; Downgrade To 'Add': ICICI Securities

ICICI Securities Report

Novelis, a subsidiary of Hindalco Industries Ltd.'s Q2 FY25 Ebitda undershot our estimates by 5%, mainly due to a sudden tightening in Aluminium -scrap spread. Key points:

1. Adjusted Ebitda of $462 million (down 5% YoY).

2. Ebitda impact from tightened scrap spreads and Sierre flooding was $35/tonne and $13/tonne, respectively;

3. Net debt/Ebitda (trailing twelve months) at 2.5 times versus 2.4 times at end-Sep’24.

4. End-market conditions remain fairly benign, particularly for beverage cans.

Ahead, management expects the impact of the Sierre flooding and elevated scrap prices to persist in H2 FY25 and is revisiting its near-term adjusted Ebitda/tonne guidance.

On balance, we revise our FY25E/FY26E Ebitda down by 3%/2%. Our revised target price works out to Rs 790 on seven times FY26E Ebitda (earlier Rs 830). We downgrade Hindalco to Add (from Buy).

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