Hindalco profits rise, analysts sceptical about tax adjustments

Hindalco profits rise, analysts sceptical about tax adjustments

Mumbai: Profits at aluminium and copper maker Hindalco Industries Ltd for the March quarter rose two-and-a-half times on the back of strong demand for its products and a boom in global metal prices, beating market expectations even as analysts cautioned that profit growth was supported by lower-than-expected tax outgo.

Hindalco reported a net tax payment of Rs10.16 crore, mainly due to an adjustment of Rs113.17 crore from previous years. Profit before tax adjustments stood at Rs551 crore. The company did not explain the adjustments.

“The tax write-backs were due to old issues that went to the tribunal and we got a favourable order. The management and our tax consultants thought that it would be prudent to write it back. These were old cases and these things may continue to happen, there should be no concern about them. Going forward, the only risk is event risk, like if the monsoon fails. But with the finance ministry predicting an 8% growth and the RBI also bringing out a good report card, I do not expect any other risk," said D. Bhattacharya, managing director of Hindalco Industries.

Both aluminium and copper sales increased because of demand from automobile, consumer durables and infrastructure sectors.

“Hindalco’s normal tax outgo is anywhere between 20% and 25% (of gross profits), but this time the total outgo is just 1.5%. In the quarter ended December, the tax rate for the company was 23%, with an outgo of Rs129 crore," said Eric Martins, an equity analyst with Systematix Shares and Stocks (India) Ltd.

Martins said if the rate of tax payments had been comparable to earlier quarters, Hindalco’s profits would have slipped to around Rs506 crore, in line with market expectations.

Hindalco had adjustments of Rs150.83 crore in the same quarter last year as well, but that was due to reasons such as forex losses, analysts said.

The firm was on a strong wicket in the March quarter.

“Higher aluminium and copper prices also helped in improving realizations," said Jatin Damania, an equity analyst with Centrum Broking Pvt. Ltd.

Hindalco had acquired US-based Novelis Inc., a global leader in aluminium rolled and aluminium can recycling in February 2007.

Analysts said the company’s expertise in making finished aluminium will hold it in good stead in the future.

Hindalco said that global consumption of aluminium rose sharply by 27% in the quarter ended March. “Though the low base effect may gradually wear off, world aluminium consumption is projected to grow at around 9% in 2010," the firm said in a statement.

Domestic demand will also likely remain strong, according to the company. “Demand continues to remain strong among all major consuming sectors, including electricals, transportation, buildings and construction," the firm said.

Hindalco shares shed 3.28% to end at Rs169.70 each on Tuesday. The Bombay Stock Exchange’s Sensex dropped 189.02 points, or 1.09%, to close at 17,141.53.