Trial by fire: Novelis may see bigger cash flow hit

Novelis Inc. now expects the hit to its free cash flow from fire at one of its plants to be double of what it had estimated earlier, following a second blaze at the same facility last year.

US-based Novelis is a wholly-owned subsidiary of the Aditya Birla Group’s Hindalco Industries.

In September, a fire had broken out at Novelis’ unit at Oswego in New York, after which the company said it expects to take a hit of $550 - $650 million on free cash flow, and an impact of $100 -150 million on adjusted earnings before interest, tax, depreciation and amortisation in the current fiscal.


Following a second fire at the same unit late in November, the company is now estimating sharper losses--it sees a hit of $1.3 -1.6 billion on total free cash flow before insurance, and an impact of $150 -200 million on EBITDA on an adjusted basis, the company said on Wednesday.

The two fires will impact shipments by around 150,000–200,000 tonnes, while the Oswego hot mill is now expected to start late in the June quarter, the company said.

While about 70–80% of the impacted cash flow and EBITDA are likely to be recovered through insurance, a majority of these will be received only later.

The company, though, is faring better than expected on the global cost efficiency programme it had embarked on at the start of the year. As compared with savings of $75 million, which it had estimated at the start of the year, the company now expects it to be $150 million on an exit run-rate basis in the current fiscal.

It also expects the cold mill at its greenfield aluminium plant to be commissioned in March, and the entire plant to be commissioned in the second half of 2026.

EARNINGS, EQUITY INFUSION

Weighed down by the fire at its Oswego plant, Novelis reported a net loss of $160 million for the December quarter. A year ago, it had reported a profit of $110 million.

Its net sales for the quarter rose by 3% year-on-year to $4.2 billion, largely driven by higher average aluminium prices, which helped partially offset the impact of an 11% decrease in total rolled product shipments to 809 kilo tonnes.

Adjusted EBITDA fell by 5% year-on-year to $348 million, while the adjusted EBITDA made on each tonne of aluminium rose by 6% y-o-y to $430 per tonne.

In November, Hindalco had said it would infuse equity of $750 million in Novelis; this activity was completed in December.

Novelis announced its earnings after market hours in India on Wednesday.

Hindalco will report its earnings on Thursday.