Hindalco arm Novelis Apr-Jun net profit hit by low volume, high costs

3 Aug 2022

Novelis Inc, a wholly-owned overseas subsidiary of Hindalco Industries Ltd, reported a muted earnings performance for the quarter ended June.

Flat shipment volume and high operating costs restricted the operating profit growth to just 1% on the year.

The flat-rolled aluminium producer and aluminium recycler reported a net profit, excluding one-time tax-effected items, of $307 mln in Apr-Jun, up 18% from the year ago period.

Novelis’ net sales jumped 32% to $5.1 bln despite shipment volume declining 1% to 962,000 tn.

The operating profit, as denoted by the earnings before interest, tax, depreciation, and amortisation, went up marginally by 1% on the year to $561 mln.

Operating profit went up in North America by 32% on the year to $227 mln and in South America by 24% to $193 mln but that in Europe fell 18% to $84 mln. The operating profit in Asia was up by 8% to $94 mln.

The overall EBITDA margin contracted sharply to 11% in Apr-Jun from 14.4% a year ago. The company said operating costs rose substantially on the back of energy costs.

Novelis’ sales, which rose 32% on the year in the June quarter, were driven by higher aluminium prices, particularly in the specialty products segment, the company told analysts in an earnings conference call today

But the volume growth was hit partly due to truckers strike in South Korea and lockdowns in China, the company said.

Shipment volumes went up in North America but fell in Europe, Asia and South America, data from the company’s investor presentation showed.

As per the free cash flow data provided by the company, it saw a free cash outflow of $73 mln in Apr-Jun as compared to a free cash outflow of $30 mln a year ago. This was on account of a rise in working capital expenses to $442 mln from $425 mln and capex spend to $110 mln from $101 mln.

The company said it saw demand for beverage can to be stable going forward. Novelis outlook on sales in automotive, specialty and aerospace segment to be positive in the next two quarters.

Novelis is a wholly-owned subsidiary of aluminium producer Hindalco Industries. According to rough estimates based on dollar-rupee exchange rates, it contributed over one-third of consolidated revenues in the June quarter of 2021-22 (Apr-Mar) and nearly 60% of consolidated operating profit.