Hindalco sees significant impact due to sharp slide in realizations
The company has been hurt by a year-long slump in aluminium prices and rising expenses associated with coal block auctions and higher finance costs
Hindalco Industries Ltd, India’s largest aluminium producer, will be “significantly impacted” in the year to 31 March because of higher interest and depreciation charges, following capacity expansion at its smelters, chairman Kumar Mangalam Birla said on Wednesday.
Hindalco has been hurt by a year-long slump in aluminium prices and rising expenses associated with coal block auctions and higher finance costs in the first quarter ended June.
The company did not rule out the possibility of a fall in profit in the three months ended 30 September, following two consecutive quarters of declining profit.
“FY16 onwards, following the full ramp-up of the projects, your company’s financial performance will be significantly impacted as interest and depreciation flow through the P&L (profit and loss) statement,” Birla said in his address to shareholders in Mumbai on Wednesday.
Birla did not say how much he expects the interest and depreciation charges to hurt Hindalco’s profit and revenue in percentage terms.
Hindalco could even post a loss in the quarter ending 30 September, said an analyst, who requested anonymity as he is not authorized to speak to reporters.
Commodity markets, and, in particular, the aluminium industry, are going through a challenging phase because of the sharp slide in realizations, said Birla. “This would impact your company’s performance in the near term,” he said.
Aluminium prices have fallen 12.6% on the London Metal Exchange (LME) so far this year.
In the last one year, prices are down about 20%.
The company’s Utkal Alumina Refinery project in Odisha has now reached nearly full capacity utilization, Birla said. The company’s Mahan smelter project in Madhya Pradesh has also “ramped up fully”, while the Aditya smelter in Odisha is at 55% capacity utilization—to be raised to full capacity utilization by the end of the financial year, he said.
“They have a big capitalization plan of smelters because of which their interest and depreciation will be under pressure in the current financial year, and realization would fall. This will start showing in the second quarter numbers,” said an analyst asking not to be named as he is not authorized to speak to reporters.
After its coal blocks were taken away on 1 April, following September 2014 Supreme Court order, Hindalco had aggressively bid in the first two rounds of the March auctions and won four coal blocks. It was forced to get coal from other sources, which pushed up power and fuel costs by 45% in the June quarter. The four blocks are taking care of 25% of the firm’s coal requirements, Birla said.
Once the coal blocks it won become operational, Hindalco will see its costs coming down.
The firm, which had a market capitalization of ₹ 15,962.34 crore as of Wednesday’s close, has seen its shares fall 51% this year. The Sensex has shed 5.58% and BSE Metals Index has dropped 32.6% in the same period.
Hindalco shares on Wednesday gained 1.31% to close at ₹ 77.30 on BSE while the benchmark Sensex rose 1% to end the day at 25,963.97 points.
Higher fixed costs could hurt profitability in the second quarter that ends in September, said Goutam Chakraborty, an analyst at Emkay Global Financial Services.
“The company’s margins are also likely to remain under pressure due to a fall in the global aluminium prices. In the second quarter, the operational performance is likely to be heavily impacted,” said Chakraborty.
In the year ended 31 March, Hindalco had a revenue of ₹ 1.03 trillion with aluminium making up for 80% of the total revenue. Finance costs in the June quarter had risen sharply by 78%, resulting in a 67% fall in standalone net profit.
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Business NewsCompaniesHindalco sees significant impact due to sharp slide in realizations
First Published:17 Sep 2015, 12:35 AM IST
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