Aluminium maker Hindalco Industries Ltd reported a 4.25 times increase in the pre-tax profit of its stand-alone operations for the quarter to March, thanks mainly to 50%-plus jump in aluminium prices.
Aluminium prices averaged $1,400 (Rs63,140) per tonne in the year-ago quarter on the London Metal Exchange (LME), according to Motilal Oswal Research. Last quarter, average aluminium prices on the LME stood at $2,189 per tonne.
As a result, profit of the aluminium division rose by 3.8 times to Rs614 crore and accounted for some 85% of the incremental profit last quarter. The copper business, which accounts for around one-fourth of the company’s stand-alone profit, also did well thanks to an increase in the treatment and refining charges of copper smelters. The division’s profit rose by 2.5 times to Rs127 crore.
The company reported a net profit of Rs664 crore, way ahead of consensus estimates, but that was because of a tax writeback of Rs113 crore. Adjusted profit was more or less in line with estimates.
Graphic: Yogesh Kumar/Mint
At the operating level, Hindalco’s reported profit of Rs835 crore was slightly short of estimates of Rs855 crore and Rs860 crore of Citigroup Inc. and Motilal Oswal. This could be the reason Hindalco shares fell by 3.8% on Tuesday despite a sharp jump in profit.
Of course, the company’s fortunes are also linked to how its overseas acquisition Novelis Inc. performs. This will be revealed when it reports consolidated results. The good news for investors is that Novelis’ performance has been improving, especially with the expiry of can contracts with price ceilings. Hindalco, therefore, seems to be firing on all cylinders, and the impending increase in its capacity should lead to strong growth in the next few years.
But even as Hindalco’s exposure to aluminium prices is limited after its acquisition of Novelis and the growth of its copper business, its stock continues to be driven by what happens to aluminium prices (see chart). The good news for investors is that aluminium prices continue to be stable thanks to strong demand, although high inventory levels could lead to a drop if demand levels reduce.
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