Loss on US asset sale drags Hindalco’s Q2 profit 60%2 min read . Updated: 10 Nov 2020, 04:23 PM IST
- While revenue from operations rose 5% year-on-year, the bottomline took a hit because of a loss of Rs1,398 crore on the sale of an asset in the US
MUMBAI: Hindalco Industries Ltd, the metals manufacturing company of the Aditya Birla group, reported a 60% fall in net profit to ₹387 crore in the September quarter. While revenue from operations rose 5% year-on-year, the bottomline took a hit because of a loss of ₹1,398 crore on the sale of an asset in the US.
As a pre-condition to Novelis’ acquisition of US-based rolled aluminium producer Aleris Corp earlier this year, Novelis had to sell its Lewisport, Kentucky, automotive aluminum body sheet plant to private equity firm American Industrial Partners for estimated net cash proceeds of about $171 million. The sale value is about half of the asset’s book value of $358 million.
“We had 10-15 buyers lined up pre-covid but many dropped post-covid and we were left with very few buyers," Satish Paid, managing director, Hindalco, said. “The only buyers left were private equity companies and frankly, it was a fire sale. We had already lost arbitration proceedings with the (US) Department of Justice in March and they pushed to close this by October because of the administration change."
“We were not treated very well. We are disappointed that we did not get a fair deal from the (US) Department of Justice," Pai said.
Novelis, and Hindalco, in the consolidated results, recognised a loss of $187 million ( ₹1406 crore) pre-tax as a result of re-measurement of the asset’s fair value on sale, causing the nosedive in net profit this quarter.
Another plant in Duffel, Belgium, was sold to Alvance, part of the GFG Alliance, according to conditions set by the European Commission. The company recorded a profit of ₹135 crore on this sale. Pai said the GFG Alliance had initially agreed in January to buy the asset at 310 million euros but post-covid, tried to negotiate the deal. “We have got 210 million euros and for the remaining 100 euros we will arbitrate; there, our position is quite strong. We signed an agreement and they will have to pay."
Hindalco reported revenue from operations of ₹31,237 crore in Q2FY21, up 5% from ₹29,657 crore in the year-ago period, with its US subsidiary Novelis reporting a 29% surge in operating income from ₹2629 crore last year to ₹3392 crore this year. The earnings before interest, tax, depreciation and amortisation (Ebitda) from the domestic aluminium business rose 32% year-on-year to ₹1066 crore even as Ebitda from copper manufacturing fell by a similar 32% to 208 crore this quarter. The company took a hit of ₹1398 crore as loss from discontinued operations this quarter.
Novelis and the domestic aluminium business were supported by higher volumes and better product mix, lower input costs, stability in operations, and cost saving initiatives, a record performance in production of beverage cans and a market revival in the automotive and high-end specialty markets in the US and Asia.
“It is heartening to see a sharp recovery of demand to near pre-covid levels in India aluminium and copper businesses," Pai said. “Novelis too sees a similar rise across segments, except for aerospace. Operationally, we have maintained high efficiency and productivity, thus enabling us to deliver a sharp increase in profit after tax as compared to both last quarter and last year."
Shares of Hindalco fell 1.4% to close at ₹192 on the BSE today.