One Risk Is Emerging For Aluminium Prices, According To Hindalco's Satish Pai

The sentiment has improved even as U.S.-based Novelis Inc. reported a drop in volumes in the quarter ended December, according to Satish Pai, managing director at parent Hindalco Industries Ltd.

Unlike two months ago, when people were fearing the U.S. going into a recession and China closing its gates, the market is more optimistic, Pai said in an interview with BQ Prime's Niraj Shah.

"The results of this quarter can be looked at in two halves, one from the perspective of the India business, which is aluminium and copper and did very well, better than expectations; and the other, where headwinds were seen in the Novelis Inc. business overseas," said Pai.

As the availability of coal brought down prices, it was favourable for the company's domestic business, he said.

Novelis' volumes fell sharply as many customers went through a "re-stocking phase" as inventories were too high, he said. The U.S. subsidiary's Ebitda was $346 million against the guidance of $400 million.

But the re-stocking phase is transitory and the business is expected to improve in fourth quarter of this fiscal and the first one of the next financial year, he said.

Many companies in the West have sanctioned Russia's Rusal, because of which most of that aluminium is going to China, he said. If that comes into Asia a lot more, it will have to be sold at a discount like what happened with oil, downgrading aluminium prices, Pai said.

Still, the lower cost of production in India, which Hindalco expects to fall by 5% more in the fourth quarter, will improve Ebitda per tonne in the coming quarters, he said.

According to Pai, the copper business outperformed with a 40% year-on-year growth. Demand is picking up, and the premium looks good, he said.

Hindalco Industries Q3 Earnings (Consolidated, YoY)

• Revenue was up 6% year-on-year at Rs 53,151 crore. Bloomberg consensus estimate was Rs 52,492.5 crore.

• Net profit fell 63% to Rs 1,362 crore against the estimated Rs 1,841 crore.

• Ebitda down 48% at Rs 3,930 crore. The analysts had estimated Rs 4,973 crore).

• Ebitda margin was 7.39% versus 15.16% a year earlier and 9.5% forecast.