Shares of Hindalco Industries Ltd. tumbled to an intraday low of 7.02% on Thursday, after Paris-based global manufacturer of aluminum products Constellium's stock tanked 28% on US exchanges overnight, following a weak set of Q3 results and negative commentary for demand outlook going ahead.
Constellium remains cautious heading into 2025, as most end-user industries, like auto specialty chemicals, are seeing no signs of demand recovery in near term.
Constellium's Commentary For Near Term
Constellium's financial results for Q3 missed the average estimates. The company witnessed aggravated demand weakness across several end markets. Impact from flooding that occurred in late June at facilities in the Valais region in Switzerland also played a role.
As per the company, aerospace demand has started to slow down as commercial aerospace OEMs are dealing with supply chain challenges and continue to struggle to increase build rates. Further, the automotive demand during the quarter started to soften in North America, while weakness accelerated in European markets, Constellium noted.
“Based on our current outlook, in 2024 we expect adjusted Ebitda to be in the range of €580 million to €600 million, excluding an estimated one-time impact of €30 million to €40 million at Valais as a result of the flood, and excluding the non-cash impact of metal price lag," stated the company.
“Given the softness we are experiencing today across most of our end markets with no signs of recovery in the near-term, we are also more cautious as we head into 2025.”
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Why Is Constellium's Commentary Important?
Constellium is a leading global producer of rolled aluminum products for transportation, packaging, and construction. Its demand insights can significantly influence the aluminum industry, including Hindalco Industries.
The company's diverse operations make its observations key indicators of industry trends. A decline in its demand could signal broader challenges for the aluminum sector. If demand weakens substantially, both Constellium and Hindalco may need to cut production to prevent market oversupply, potentially impacting profitability and leading to temporary plant closures.
The company reported weak demand in the European and US auto and specialty markets, which comprise 38% and 17% of its business, respectively. Hindalco Industries plays a crucial role in both domestic aluminum segments and the international market through its subsidiary Novelis Inc., which produces and recycles aluminum products.
In fiscal 2024, Hindalco's aluminum business accounted for 18% of its revenues, while 61% came from Novelis—which operates in North America, Europe, Asia, and South America.
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Q3 Results
The company's financial results for Q3 missed the average estimates. The company's revenues fell 4.7% year on year to 1.64 billion euros, compared to the average estimate of 1.77 billion euros.
The company's revenues for its aerospace and transportation, and its automotive structures segments, both fell on an annual basis, missing average estimates.
Positive Signs For Packaging
Constellium's packaging and automotive segment was the only segment that saw positive revenue growth of 4% on an annual basis in Q3. The segment's revenues stood at 993 million euros, compared to the average estimate of 997.4 million euros.
The company also gave positive commentary for the segment, which has a 38% share in the company's total operations. This poses well for Hindalco Industries, since the beverage packaging segment is a key end-use for its aluminum flat rolled products. As per the company, India's FRP market is estimated to grow 7-5% in fiscal 2025, led by segments like packaging, auto, and construction.
In the first quarter of fiscal 2025, Novelis' shipments grew 8% year on year to 951 kilotonne, due to normalised demand for beverage packaging sheets.
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Shares of Hindalco Industries fell as much as 7.02% before paring some loss to trade 4.09% lower at Rs 687.75 per share at 10:39 a.m., compared to a 0.02% decline in the NSE Nifty.
The stock has gained 11.8% year-to-date and 49.01% in the last 12 months. Total trade volume of the stock stood at 5.3 times its 30 day average so far in the day. The relative strength index was at 39.15
Of the 29 analysts tracking the company, 25 maintain a 'buy' rating, one recommends a 'hold' and three suggest a 'sell'. The average 12-month analysts' consensus price target implies an upside of 10.5%.
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