Here's Why Hindalco Industries Shares Plunged 14%
Brokerage firm CLSA also sees achieving a double-digit IRR as a "tough ask". It downgraded Hindalco to an "underperform" rating, over the cost and time overrun for the Bay Minette project.
Shares of Hindalco Industries Ltd. fell over 14% on Tuesday after its U.S. unit, Novelis Inc., upwardly revised the cost of its green field project, Bay Minette, to $4.1 billion.
The stock plunged 14.78% to Rs 496.35 apiece so far on Tuesday.
The revised project cost is 65% higher than the earlier estimate of $2.5 billion.
"When we initiated this project, our front-end engineering design was completed with a very low level of engineering, which underestimated the civil and construction requirements for projects of this scale," Novelis said in the third quarter conference call on Monday.
"We had the additional challenge of constructing near a coastal site and some overly ambitious views on our ability to pull costs downward in a high inflationary environment," it said.
Apart from the cost overrun, the company has also delayed the project commissioning, which will now take place in the second half of the calendar year 2026.
The project-level confidence interval for the revised project cost stands at around 85%, and management does not expect a further increase since the $4.1 billion cost has built-in contingencies.
The company's management has also downgraded its return guidance from the project to double-digit IRR, compared to the earlier expectation of mid-teen IRR growth.
Brokerage firm CLSA also sees achieving a double-digit IRR as a "tough ask". It downgraded Hindalco to an "underperform" rating, over the cost and time overrun for the Bay Minette project.
Novelis Inc.'s net sales fell 6.3% to $3,935 million in the quarter ended Dec. 31, according to an exchange filing.
The adjusted Ebitda rose 33% year-on-year to $454 million, and the net income jumped to $121 million from $12 million a year ago.
The company's Q3 FY24 adjusted Ebitda came in line with estimates, with the demand outlook improving in America, whereas Europe and Asia remain under pressure, according to Kotak Institutional Equities.
Management has guided an adjusted Ebitda of about $500 million and an adjusted margin of $525 per tonne for Q4 FY24.
