Hindalco Q4 net profit falls 37% on lower aluminium prices
The year-on-year decline in net profit is attributed to the significant fall in base metal prices compared to the year ago quarter while inflationary pressure, though easing, remains higher than last year.
PremiumNEW DELHI : Hindalco on Wednesday reported a 37% year-on-year decline in consolidated net profit to ₹2,411 crore during the January-March quarter compared to ₹3,851 crore net profit in the year-ago quarter. The net profit, however, was better than consensus analyst estimates of ₹2,046 crore as indicated by Bloomberg.
The year-on-year decline in net profit is attributed to the significant fall in base metal prices compared to the year ago quarter while inflationary pressure, though easing, remains higher than last year. The year-ago quarter had seen a sharp rally in aluminium price after the start of the Russia-Ukraine war. Aluminium averaged around $3,275 a tonne on the London Metal Exchange (LME). During FY23, however, the rally fizzled due to concerns about a global slowdown. During Q4FY23, aluminium prices on the LME averaged $2,395 a tonne, down 27% from the previous year.
This meant that aluminium upstream Ebitda at ₹2,192 crore declined 41% y-o-y. However, on sequential basis segment business performance improved significantly as aluminium averaged 3% higher while cost of production per tonne declined by about 5%. Aluminium upstream Ebitda thereby saw significant sequential improvement from ₹1,591 crore seen during Q3 (up 38% sequentially).
The copper segment, however, continues to remain strong and is supporting overall India business with regular improvement in performance. The demand in the country is strong and has surpassed the pre-covid levels, as per the company’s management.
The rising volumes, improved TC/RC margins (Treatment and Refining charges) meant that Ebitda for the copper business was at an all-time high of ₹598 crore in Q4FY23 compared to ₹387 crore in Q4 FY22, up 55% y-o-y and 9.5% sequentially.
The weaker global demand, however, is putting pressure on the volumes of its US subsidiary Novelis. The inventory destocking in the beverages can market continues impacting Novelis volumes though good demand is seen for automotive and aerospace products. Novelis, which contributes more than half of the company’s overall operating profit, saw its adjusted Ebitda of $403 million decline 6% y-o-y. On a sequential basis, however, improved product pricing and volumes product mix helped as adjusted Ebitda improved smartly from $360 million seen in Q3.
The company’s consolidated Ebitda at ₹5,818 crore, though down 23% y-o-y, however, improved sharply from ₹3,930 crore in the previous quarter (up 48% sequentially).
The overall India operations Ebitda stood at ₹2,902 crore and came better than analyst estimates. Analysts at ICICI Securities had estimated India operation Ebitda to come at ₹2,510 crore. This led to reported net profit beat expectations.
The net profit, though down 37% year-on-however, also improved from ₹1,362 crore in the previous quarter to ₹2,411 crore in Q4.
The consolidated revenues from operations at ₹55,857 crore, was up 5% sequentially and remained flat on y-o-y basis.
Satish Pai, managing director, Hindalco Industries, said, “Our diversified business model continues to drive Hindalco’s resilient performance in challenging times. Our copper business delivered exceptional results."
The momentum in the copper business is likely to continue on rising volumes amidst strong demand and improving TC/RC margins. Pai expects aluminium prices to range between $2,200-2,400 a tonne and expects the cost of production to remain stable at Q4 levels despite some spike seen in coal prices seen in Q4.
The coal prices that had spiked close to $400 a tonne levels in February, however, again have softened o below $330 a tonne in the ongoing quarter as per analysts. Coal availability, however, has improved.
In the aluminium business however Pai remains cautious due to weak China demand that can lead to higher exports from China into India.
For Novelis, Pai expects the ongoing inventory destocking in the beverages can market to continue during the ongoing quarter, however, respite is anticipated from July-September quarter.
“Looking ahead, a net-debt-free India business and a strong balance sheet will continue to power our ambitions for organic growth," Pai said.
The company plans not to raise any debt to meet its capex requirements and will be pacing its capex as per cash flows. About ₹5,000 crore capex is planned for India business during FY24 while $1.8 billion is for expansions at Novelis.
In India company is spending on downstream expansions and rising contributions from value added products are positive for the company’s profitability and insulate it from fluctuations in aluminium prices .
Consolidated net debt to Ebitda stood at 1.39 times as of 31 March 2023 compared to 1.6 times as of 31 December 2022.
“We also continue to drive our holistic ESG approach with specific targets that go beyond carbon emissions, and encompass other planet-critical aspects like waste, biodiversity, water positivity, and community inclusion." said Pai.
The company plans higher usage of renewable power and ramp-up low carbon product contributions.
"Exciting news! Mint is now on WhatsApp Channels 🚀 Subscribe today by clicking the link and stay updated with the latest financial insights!" Click here!
