Hindalco Industries Ltd’s performance in the March quarter was boosted by higher metals prices, which have been on a roll through fiscal 2011. Aluminium prices on the London Metal Exchange (LME) rose by about 7% and copper rose 12% over the previous quarter. Further, the output of aluminium and copper, which was hit during the previous two quarters, was back to normal.
Therefore, revenue from the aluminium segment grew 12% sequentially and about 8% from a year before. Copper segment revenue rose 15% sequentially and 38% year-on-year (y-o-y) on higher volumes and better prices.
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Profit margins during the quarter were also buoyed by Hindalco’s improved product and geographic mix in sales. It cashed in on higher domestic demand, and increased alumina sales. The profit (before interest and tax) margin for aluminium expanded sequentially, but was significantly lower on a y-o-y basis. Perhaps, the rise in coal and energy costs outstripped the rise in aluminium price. But improvement in margins, both sequentially and on a y-o-y basis, in the copper business pleasantly surprised the Street, as the industry suffered from subdued treatment and refining charges. This is expected to improve during the current calendar year, auguring well for Hindalco’s profitability in the medium term.
The company’s stand-alone operating margin at 13.4% improved marginally from the preceding quarter. However, operating profit grew by 24% sequentially and 10% from the year-ago period. Adding to this was the rise in other income, as the yield on investments rose. The size of the investment corpus grew as Novelis Inc., its Canadian subsidiary, returned capital to Hindalco.
Net profit for the quarter was Rs 708 crore, about 7% higher than a year ago. A report from Angel Broking Ltd says that the company is well poised to benefit from expansion in aluminium capacity in the next three-four years. Of course, earnings growth would hinge on timely execution of these projects. Besides, there are concerns about whether aluminium prices would hold out. This would determine Hindalco’s share price, as it is known to move in tandem with LME prices.
Graphic by Yogesh Kumar/Mint
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