Shares of Hindalco Industries dropped 7% on Thursday, November 7, as the company's US-based subsidiary, Novelis Inc., reported a decline in its net profit for the September quarter. Hindalco's stock tumbled to ₹657.65 per share on the Bombay Stock Exchange (BSE), with investor sentiment affected by Novelis’ disappointing performance and outlook.
This decline has raised concerns about Hindalco's broader outlook, especially as it impacts sentiment in share market investments.
Novelis reports 18% fall in profit
Novelis Inc., the global aluminium producer and subsidiary of Hindalco, reported a decline of 18% in its net income for the July-September period of the financial year 2024-25. The company recorded a net income of USD 128 million, compared to USD 157 million during the same period in the previous year. The lower profit was largely attributed to a $61 million charge related to production interruptions at Novelis' Sierre plant, alongside higher restructuring and impairment expenses. Additionally, lower operating performance contributed to the overall fall in profits.
While the company’s net sales did rise by 4.5%, totalling $4,295 million as compared to $4,107 million in the year-ago period, it wasn't enough to offset the profit slump. Investors were particularly concerned about the future as Novelis withdrew its short-term EBITDA per tonne guidance of $525, which added to the market’s unease.
Withdrawal of EBITDA guidance causes concern
A key factor in the significant drop in Hindalco’s share price was Novelis’ decision to withdraw its EBITDA guidance. Analysts believe the suspension was linked to the tightening scrap spreads, a result of accelerated scrap purchases by China. The withdrawal of guidance has created further uncertainty, and many analysts are now concerned about the impact of these tight scrap spreads on the company’s earnings in the near term.
An analyst firm, stated, "We were not convinced with its steep EBITDA/t improvement trajectory in the medium term. With the company now withdrawing its EBITDA/t guidance over concerns surrounding the accelerated tightening of scrap spreads with the liberalisation of scrap imports by China, we think it creates a near-term overhang for the stock." The analysts also warned that the lack of clarity regarding future profitability could weigh on Hindalco's stock price in the short term.
Novelis responds to challenges
Despite the decline in net profit, Novelis maintained that it was able to achieve record beverage packaging shipments during the quarter. Steve Fisher, President and CEO of Novelis Inc., stated, "Our global footprint allowed us to achieve record beverage packaging shipments in the quarter and also mitigate the impact to customers from the flooding-related outage at Sierre."
Devinder Ahuja, Executive Vice President and CFO of Novelis added, "We are more focused than ever on diligently managing the balance sheet as we continue to progress the growth investments we have underway and navigate shifting market dynamics." However, despite these reassurances, the negative financial outlook and the uncertainty regarding future performance have put Hindalco’s stock under pressure.
Market outlook and share market investment sentiment
The sudden fall in Hindalco’s share price highlights the volatile nature of the market and the impact that a subsidiary's underperformance can have on parent company stocks. For investors involved in share market investment, such sudden price drops serve as a reminder of the risks involved, especially when there is a lack of clarity about a company’s future earnings.
In conclusion, while Hindalco Industries continues to be a key player in the global aluminium market, the recent financial performance of Novelis and its withdrawn guidance has raised significant concerns. Investors are likely to monitor the company closely in the coming months, with market sentiment heavily influenced by Novelis' ability to recover and navigate the ongoing challenges in the aluminium market.
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