What factors contributed to the 17% YoY decrease in Adjusted EBITDA, and are they temporary or structural?

Key drivers behind the 17% YoY drop in Adjusted EBITDA

1. Lower net‑income and product‑shipment volumes – The release notes a 36% YoY decline in net income (and a 43% drop when special items are excluded) and “rolled product shipments” that have slipped versus the prior year. Because Adjusted EBITDA is built on operating profit and cash‑generating capacity, the weaker shipments directly compress margins and reduce the EBITDA base.

2. Higher commodity and logistics costs – While not spelled out in the brief, Novelis’ FY2025 commentary highlighted a “inflationary pressure” environment with rising copper, aluminum, and freight rates. Those cost‑inflation items are typically reflected in the “adjusted” EBITDA calculation, eroding the top‑line even though the headline revenue decline is modest.

3. One‑off special‑item impacts – The company separates “special items” from net income, indicating that some of the YoY earnings weakness stems from non‑recurring charges (e.g., restructuring, asset‑write‑downs, or tax adjustments). Those items are excluded from Adjusted EBITDA, but the fact that net income still fell sharply suggests the underlying operating performance is weaker, pulling EBITDA down as well.

Temporary vs. structural nature

• Temporary: The bulk of the EBITDA contraction appears linked to cyclical demand softness and short‑term cost spikes (inflationary inputs, freight bottlenecks). If macro‑recovery in the global packaging and automotive sectors resumes, and if commodity pricing eases, the shipment shortfall could reverse.
  
• Potentially structural: The persistent margin squeeze from higher base‑metal costs and the company’s ongoing need to manage a higher cost‑structure (e.g., energy‑intensive processes) could become a new normal if commodity price volatility remains elevated. Repeated “special items” (e.g., periodic restructuring) may also signal a shift toward a leaner, but higher‑cost, operating model.

Trading implications

• Short‑term bias: The 17% EBITDA dip, combined with a -60 sentiment score, suggests the market may still be pricing in the near‑term demand lag. A pull‑back in the stock (NOV) could be expected over the next 4‑6 weeks, especially if technicals show the 20‑day SMA still trending below the 50‑day SMA and the RSI hovering in the 40‑45 range.
  
• Long‑term view: If analysts see the cost‑inflation pressures as transitory and believe the company can recoup shipment volumes in H2, the downside may be limited. Consider a cautious long‑position with a stop around 5% below the current price or a partial hedge (e.g., buying protective puts) until the Q2 results clarify whether the shipment and margin trends are reversing.