Hindalco shares will react to Novelis' optimistic commentary but concerns remain

Shares of Hindalco Industries Ltd. are in focus on Wednesday, May 20, after its wholly-owned subsidiary Novelis reported its fourth quarter results, wherein its operational numbers improved and the company guided for better times ahead.

How Did Novelis Fared In Q4

Novelis' shipments during the quarter declined to 844 Kilo Tonnes (KT). That's a 12% decline from the 957 Kilo Tonnes (KT) reported during the same quarter last year. The figure was marginally higher than the 809 KT reported during the December quarter. Novelis had estimated shipments to be 73 KT lower due to the Oswego unit fires.

On the operational front, Novelis' Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) stood at ₹544 per tonne, higher than the ₹494 per tonne last year and ₹430 per tonne in the previous quarter.

The company's EBITDA on an adjusted basis fell 3% to $459 million, impacted by a $53 million negative impact due to the Oswego fires and another $27 million due to tariffs. This was partly offset by Sierre Flood Insurance recoveries worth $41 million.

Net loss attributable to the common shareholder stood at $84 million, while Net income is attributable to the common shareholder, excluding special items, $227 million, down 13% from last year.

The company exited FY26 with over $200 million run rate in cost savings from the global cost efficiency programme. It is targeting for that number to reach $300 million in FY27 and to $350 million - $400 million by the end of FY28.

Guidance

Novelis is expecting capital expenditure for the financial year 2027 to be in the $2.1 billion to $2.4 billion range, including $350 million for maintenance capex.

The company is also hopeful of free cash flow positivity to return by the end of the ongoing financial year.

Novelis expects to restart its fire-impacted New York facility in the next few weeks. The full commissioning of Bay Minette plant remains on track by the end of the ongoing calendar year.

The total free cash flow impact of both fires, before insurance, is approximately $1.7 billion compared to the previously projected range of $1.3 billion - $1.6 billion. Adjusted EBITDA is impacted by $100 million to $150 million, while shipments worth 150 KT to 200 KT are impacted.

The company expects to recover 70% to 75% of the cash flow and adjusted EBITDA impacted through insurance in the future periods.

Debt Concerns

The concern amidst the Novelis' optimistic commentary is the rising debt.

Net Debt at the end of the quarter stood at $6,724 million from $5,176 million last year and $6,204 million in the previous quarter.

The company's Net Debt-to-Adjusted EBITDA on a trailing 12-month basis also jumped to 4.1 times from 2.9 times last year and 3.7 times in the previous quarter.

On an overall basis, the company's net debt-to-EBITDA rose to 4.1 times, the highest in 23 quarters.

Shares of Hindalco Industries ended the previous session 0.6% lower at ₹1,047 apiece. The stock has gained 17% this year, so far.

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