Hindalco is amongst the top five gainers on the BSE this morning. The stock price rose 4% at Rs.195.80, which is not too far away from its 52-week high of Rs.203.85.
The market is very happy as the company’s subsidiary, Novelis Inc, reported a very good performance for Q4FY17. The overall rise in profitability during the quarter can be attributed to higher average aluminum prices and increased shipment of premium products.
Net profit of Novelis rose 62% (YoY) to $47 million on a 9% rise in net sales at $2.6 billion. Operating income after adjusting for a metal price lag stood at $292 million, up 5%. Novelis factors in a metal price lag in its earnings – the difference between prices at the time of manufacture and eventual sale of the product.
A good performance by Novelis is usually taken as a harbinger of good tidings for Hindalco itself when it announces its own numbers.
The market is more happy with the other news - Novelis also entered into a joint venture with Japan's Kobe Steel. This JV will be named Ulsan Aluminium and will be formed by Novelis selling 50% of its ownership stake in its Ulsan facility in South Korea to Kobe for $315 million.
The two companies will jointly operate the Ulsan facility, but each company will remain responsible for its metal supply. The transaction is expected to close by September this year. The proceeds from the transaction will also be used to reduce Novelis’ net debt.