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Hindalco Q4 profit falls 36% to Rs 160 crore

Hindalco Industries reported a net profit of Rs. 159.53 crore for the quarter ended March 31 on standalone basis against a profit of Rs. 248.15 crore in the same quarter last year, hurt by higher input costs and falling premiums on aluminium.

Net sales of the company, controlled by industrialist Kumar Mangalam Birla, rose 11% to Rs. 9372 crore. Analysts, on average, were expecting a profit of Rs. 274.16 crore on sales of Rs. 8304.4 crore, according to a Bloomberg poll.

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Finance costs more than doubled to Rs. 466 crore as the company capitalized some of the assets at its new smelters in Madhya Pradesh and Odisha. The company was also hurt by a one-time exceptional cost of Rs. 146 crore. Earnings before interest, depreciation, tax and amortisation (EBITDA) margin for the quarter fell to 9% from 10% in the same quarter last year.

Hindalco has faced severe shortage of coal for its new plant at Mahan in Madhya Pradesh amid controversies related to forest clearance. Eventually the company lost the mine in Mahan along with all other mines after Supreme Court’s judgement on coal block allocation last year.

Hindalco has had a tough year with Central Bureau of Investigations looking into coal block allocation, Greenpeace protests in Mahan, loss of coal mines and a huge penalty. All of this resulted in delay of projects and increased costs.

Situation is finally turning around for Hindalco. It won four coal mines in the auctions earlier this year, helping it secure 30% coal requirement annually. None of these mines are operational yet and are awaiting several clearances that are expected to come in by end of June. It is buying coal at market prices to produce energy-intensive aluminium. It will bid for more coal blocks in the third round of auctions.

“We had expected high interest costs, we knew there would be some soft years. What we had not expected was a sharp fall in premiums and aluminium prices on London Metal Exchange,” Managing Director Debnarayan Bhattacharya told ET. “But there are lot of positives. The new plants up and running and we will hit a sweet spot with them soon.”

He does not see premiums to fall any further but surplus supply of aluminium is expected to keep prices under pressure. The company continued to ramp up Mahan smelter in Madhya Pradesh and Aditya smelter in Odisha, helping it increase production volumes by 37%. Mahan smelter is functioning at 80% capacity, while Aditya is functioning at nearly 50%.

Hindalco has been banking on export markets to sell its produce with Indian demand showing no uptick for several quarters now. It exported as much as 40% of its production last financial year versus less than a fifth last year, a year earlier.

The company has a gross debt of Rs. 23,000, as on March 31, 2015 with an average interest cost of 10%.

Hindalco’s US subsidiary reported disappointing fourth quarter profit at $29 million, down from $54 million in the corresponding quarter. Its CEO Philip Martens was ousted by the board soon after. The company is also exploring strategic alternatives with its Aditya Birla Minerals Ltd in Australia, which include reviewing ownership options available to the company.


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