Hindalco Q1 profit jumps fivefold to Rs294 crore as costs decline
Mumbai: Kumar Mangalam Birla-led Hindalco Industries Ltd will focus on reducing its debt to Ebitda (earnings before interest, taxes, depreciation and amortization) levels, stabilize operations and cut costs this fiscal year, its managing director Satish Pai said in an interview.
The aluminium and copper flagship of the Aditya Birla Group on Friday reported a near five-fold jump in stand-alone net profit for the quarter ended 30 June, helped by benign input costs and a rise in aluminium production.
Quarterly net profit rose to Rs.294.07 crore from Rs.61.10 crore in the year-earlier period. Net sales, however, fell about 12% to Rs.7,501.39 crore from Rs.8,517.29 crore a year earlier due to a sharp decline in realizations.
Sixteen analysts polled by Bloomberg had expected Hindalco to report net profit of Rs.214.4 crore while 17 analysts had expected sales of Rs.8,389.3 crore.
Revenue from aluminium, Hindalco’s largest business, rose 7.5% to Rs.4,263.3 crore, helped in part by lower input costs. The copper business revenue fell about 28% to Rs.3,336.36 crore, hurt by a planned shutdown for maintenance of a smelter in the Dahej unit.
Hindalco’s production cost for aluminium in India has declined sharply in recent years and the company is benefiting from efficiencies as all its plants are now fully operational, Pai said.
Of the 16 million tonnes of coal that Hindalco requires for the year, it has linkages for about 11 million tonnes and plans to buy the remaining at e-auctions. “Input costs are going in our favour. Coal India Ltd has done a great job (of production); in the last six months, there is a lot of coal available at e-auctions. So coal prices are very reasonable. Three main input costs—oil, alumina and coal—have been very favourable for us,” Pai said.
The company is targeting to increase the proportion of value-added products such as rolled products, extrusions, wired rods to 60-70% of its portfolio in the next few years from 40% currently in order to improve Ebitda. It expects to keep the debt to Ebitda ratio below five.
“The smart cities, grid electrification and defence are going to lead the growth for aluminium demand. India consumed 3 million tonnes of aluminium last year and that is growing at double digits annually,” Pai said.
As on 31 March, Hindalco had a consolidated debt of Rs.67,068.74 crore.
Total expenses in the first quarter fell about 16% to Rs.6,703.82 crore from Rs.7,993.05 crore a year earlier.
Aluminium production during the first quarter rose 17% to 308 kilo tonnes. The average London Metal Exchange prices for aluminium and copper were lower by 11% and 22%, respectively, Hindalco said in a statement.
“Hindalco right now is in a better spot than peers Nalco or Vedanta Ltd (aluminium business) in terms of improving its profitability. Hindalco has bauxite supply at its disposal and at least 65% of coal linkages,” said an analyst at a Mumbai-based brokerage firm, asking not to be named as he is not authorized to speak to reporters.
“The company has managed to cut costs and got higher realization vis-à-vis three to four months ago and this scenario is likely to continue as long as China maintains exports at low levels... The likelihood of an anti-dumping duty will also benefit Hindalco,” he said.
India, which imports 50% of its aluminium from markets including China and the Middle East, is discussing introduction of an anti-dumping duty for aluminium. The Aluminium Association of India is lobbying for implementing a safeguard duty and minimum import price in aluminium.
“The company delivered a robust operational performance in adverse macroeconomic conditions. Its operational performance was also supported by deflationary energy prices. The macroeconomic headwinds still persist and the uncertain global macro factors pose several challenges. The high level of imports continue to impact domestic sales volumes,” Hindalco said on Friday.
Hindalco shares rose 2.78% to Rs.146.20 apiece on BSE on a day the benchmark Sensex gained 1.05% to 28,152.40 points.