Novelis Fire to Cut Free Cash Flow by $550M-$650M; Hindalco Unit to Restart New York Mill in December

Novelis, the US-based aluminium rolling company and a subsidiary of India's Hindalco Industries, has announced that a fire at its Oswego unit in New York during September will negatively impact its free cash flows by an estimated $550 million to $650 million for the current fiscal year. This includes an adjusted EBITDA impact of $100 million to $150 million. The company's hot mill is slated for restart in December, ahead of the initial March quarter projection, as teams work to restore operations and minimize customer disruption by using alternative resources.

Novelis has accounted for $21 million in charges related to the incident and expects to recover approximately 70-80% of property damage and business interruption losses through insurance in future periods.

In its September quarter results, Novelis reported a 27% year-on-year increase in net income to $163 million. However, excluding special items, net income was 37% lower year-on-year at $113 million. Net sales rose 10% year-on-year to $4.7 billion, driven by higher average aluminium prices, while total rolled product shipments remained flat year-on-year.

Adjusted EBITDA saw a 9% year-on-year decline to $422 million, attributed to net negative tariff impacts and higher aluminium scrap prices, partially offset by product pricing and cost efficiencies. The company continues strategic investments, including a new greenfield rolling and recycling plant in Bay Minette, Alabama, having spent $913 million on capital expenditure in the first six months of the fiscal.

Impact: This news directly affects Hindalco Industries, the parent company, due to the significant financial impact on its major subsidiary, Novelis. While insurance coverage mitigates some of the losses, the disruption and cash flow reduction will influence consolidated financial performance and investor sentiment towards Hindalco. The early restart of the mill is a positive mitigating factor. Rating: 7/10.

Difficult Terms: * **Free Cash Flow:** The cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. It represents the cash available to pay debts, pay dividends, and buy back stock. * **Adjusted Earnings Before Interest, Tax, Depreciation, and Amortisation (Adjusted EBITDA):** A measure of a company's operating performance, excluding interest, taxes, depreciation, and amortization, and often adjusted for certain one-time or non-recurring items. * **Hot Mill:** A type of rolling mill used to process metals, typically steel or aluminum, at high temperatures to shape them into coils or sheets. * **Tariff Impact:** The financial effect of import duties or taxes imposed by a government on goods entering or leaving the country. * **Capital Expenditure (CapEx):** Funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.