On February 13, Hindalco Industries’ stock experienced a 10% decline following a reassessment of expected returns from its US subsidiary, Novelis, for their Bay Minette project. The project now faces a significant cost increase of 65%, bringing the total to $4.1 billion, along with a one-year delay in completion, now projected for end-CY2026E or 2HFY27E. This cost escalation and delay have raised concerns about future profitability.
Moreover, there’s a possibility of further cost escalation, although management is 85% confident in the current estimates. As of 3QFY24, Novelis reported a net debt/EBITDA ratio of 2.7X.
In its 3QFY24 report, Novelis, the Atlanta-based aluminum company, showed a 23% decrease in net profit quarter-on-quarter, totaling $121 million. Revenue also fell by over 4% QoQ and 6% YoY to $3.94 billion. Adjusted EBITDA was $454 million, indicating a 33% YoY increase but a 6.2% QoQ decrease. Rolled product volumes were stable YoY at 0.91 million tonnes, though there was a slight QoQ decrease of 2.5%. Adjusted EBITDA per tonne stood at $499, affected by seasonal changes and planned shutdowns.
Global economic conditions, particularly in Mexico, Europe, and Southeast Asia, may impact the can segment, while the building and construction segment faces headwinds from higher interest rates and inflation. Energy costs in Europe also pose a concern. Despite these challenges and the increased costs and delays of the Bay Minette project, management remains optimistic about its long-term potential. Novelis reported a solid liquidity position of $2.1 billion as of December 31, 2023, reflecting the company’s financial strength.
