Novelis Inc, a 100% subsidiary of Indian aluminium major Hindalco, may not see a turnaround in FY2010 as the continuous decline in aluminium prices, dip in its product demand and hit on its margin will restrict the company from showing any positive performance in the next financial year, say experts.
Meanwhile, Martha Brooks, CEO of Novelis, on Wednesday had told FE over telephone, ?Although the business has fallen nearly 30%, Novelis has a prominent place in the cans segment, and expects to see a turnaround in business by 2010.?
However, the company?s financial details and global economic conditions tell a different story.
Aluminium prices are expected to remain low in FY2010 as well. As much as 40% of Novelis? business comes from the can sheet market, which has already taken a hit this quarter and 28-30% of the business comes from automotive and construction markets which is almost dented. Moreover, 40% of its revenues come from the North American markets, which is in a bad shape, all these reducing the company?s margins to 2.5% from 8-9% earlier.
Shares of Hindalco Industries on Thursday slipped 3.49% to close at Rs 40.10 on the Bombay Stock Exchange.
Said Tarang Bhanushali, an analyst with India Infoline, ?Novelis has booked its raw material cost and also has selling price contracted with some companies, due to which they are not able to pass on any volatility in the prices. Moreover, the company?s fixed cost per tonne is also high and demand is expected to fall further. Hence, any turnaround in Novelis is expected only by the second quarter of FY 2011.?
Novelis, during its Q3 results of the current financial year, reported $472 million of non-cash, unrealised losses on derivatives against $24 million loss in the corresponding quarter last year. These derivatives are used to hedge exposure to aluminium, primarily related to customer fixed price contracts, other commodities and currency.
Novelis shipments of flat rolled aluminium dipped by 13% in Q3 FY2009 to 633 kilotonnes against Q3 FY2008. Can sheet shipments were lower by 5% y-o-y due to inventory reduction in the supply chain. In a statement on Wednesday, Brooks had said, ?The can sheet market, while dampened by customer de-stocking during the quarter, remains a relatively stable sector. This is a positive factor for Novelis.?
?Shipments to automotive, construction and industrial markets were significantly impacted by the economic downturn. The lower shipment volumes negatively impacted pre-tax income by $78 million compared to Q3 FY2008,? Novelis said in a statement.
?Novelis volumes going forward are expected to dip and margins in FY 2010 are at the most expected to be in the same lines as in the current financial year,? experts say.
Loosening grip
•40% of the business comes from can sheet market, which has already taken a hit this quarter
• 28-30% of the business comes from automotive and construction markets, which is almost dented