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Hindalco-backed Novelis reported in the fourth quarter of FY23 a net income of $156 million that was attributable to common stockholders, a 27% YoY decrease. Furthermore, year-over-year declines of 6% and 9% were seen in adjusted EBITDA and net sales, respectively. The business’s overall performance is in line with projections. In the metal sector, Hindalco is still a top choice following Novelis profits.
Novelis is one of the world’s top suppliers of environmentally friendly aluminum solutions and a pioneer in recycling aluminum.
Due primarily to lower adjusted EBITDA, as well as advertising, and a favorable metal pricing lag in the prior year that did not return, Novelis net income in Q4FY23 declined 27% from the prior year to $156 million.
Also, net income from continuing operations, excluding special items, decreased by 7% versus the prior year to $175 million.
Further, Novelis posted adjusted EBITDA of $403 million down by 6% YoY, driven by less favorable metal benefits from recycling, higher energy costs and other cost inflation, and lower volume, partially offset by higher product pricing and favorable product mix.
As a result of lower average aluminum prices and a 5% decline in total shipments of flat rolled products to 936 kilotons, net sales for the fourth quarter fell 9% YoY to $4.4 billion, somewhat offsetting higher product pricing and a favorable product mix.
The financial statement states that the decline in shipments is principally attributable to decreased beverage can shipments caused by short-term headwinds, especially client inventory reduction initiatives, as well as macroeconomic effects on specialty products, primarily in the building & construction industry.
Greater aerospace sales and record automotive shipments as a result of greater OEM build rates brought on by pent-up demand somewhat offset these decreases.
Novelis Inc.’s president and chief executive officer, Steve Fisher, stated that “Novelis continues to deliver solid performance in a challenging environment, enabled by our diversified product mix, operational efficiencies, and financial discipline.”
The shipments were 3,790 kilo tones in FY23, a 2% YoY decreased.
The net income was $658 million, a 31% YoY decline. $1.8 billion in adjusted EBITDA, down 11% year over year.
In fiscal year 2023, net sales climbed 8% to $18.5 billion.
The executive vice president and chief financial officer of Novelis, Dev Ahuja, added that “while our results continue to be muted by near-term challenges, we have demonstrated that our business is resilient, with fourth quarter Adjusted EBITDA per ton improving significantly on a sequential basis compared to the third quarter and very strong free cash flow generation even as we increase capital investments for future growth.”
According to Ahuja, Novelis is well-positioned to weather the present market difficulties and will keep up its strict approach to effectively managing cash as the business enters its upcoming phase of transformative development.
Fisher said, “While macroeconomic challenges are dampening near-term performance, we think these are temporary and that the long-term market outlook for our industry is positive. We are devoted to our transformative organic development plan to strengthen our position as a top worldwide provider of low-carbon, sustainable aluminum solutions thanks to our market leadership and solid balance sheet.
One of Novelis’s parent businesses is Hindalco. On the BSE, Hindalco’s share price ended the day at $436.25 per unit, down by 0.93%.
On Novelis Q4 results, Tushar Chaudhari – Research Analyst, Prabhudas Lilladher said, “Novelis reported 4QFY23 adjusted EBITDA of USD431/t (up 15% QoQ; -1% YoY); largely in-line with the guidance given earlier. FRP Volumes declined 5% YoY (up 3% QoQ) to 936kt while average realization declined 4% YoY (up 2% QoQ) to USD4,698/t.”
He said management expects volumes to remain soft in 1HFY24 led by destocking in beverage packaging and weakness in cyclical end markets. Automotive segment demand remains strong led by easing supply chain issues and pent-up demand while Aerospace demand also remains strong due to strong growth in aircraft build rates.
Following this, Chaudhari said that Hindalco remains one of the preferred plays in metal space. However, he did not recommend any buy or sell but said that the stock is trading at an attractive valuation.
The analyst said, “HNDL remains one of our preferred play in metals space given a) Novelis performance is expected to improve gradually; b) improving trajectory for India aluminum business given subsided cost inflation YoY and improving volumes from high-value downstream businesses; c) enhanced resource securitization in long term and significant correction in coal prices to benefit in near term. At CMP the stock is trading at attractive valuations of ~5.4x EV of FY24E EBITDA.”
