Earnings from aluminium business continue to decline for Hindalco

MD assures portfolio of aluminium, copper will help the company in difficult times

Aluminium, on the (LME), has been falling since the beginning of the year. So has been the core earnings of and in turn, the profits.

The company maintains that its two businesses, and copper, complement each other well. D Bhattacharya, managing director, Hindalco Industries, says, "If the business is down then the copper business comes to the rescue and when copper prices are under pressure, performs well." This is true to an extent but the fall in profits caused by the business is not getting fully covered by copper.

Hindalco's earnings before interest and tax (Ebit), for aluminium, has been falling constantly since the first quarter of the current financial year. The Ebit share for the white metal has come down to 59 per cent at the end of the third quarter, as against a robust 81 per cent at the end of the first quarter. The prices on the LME has fallen from $2,603 per tonne to $2,091 per tonne in the given nine months. The Ebit share of copper has increased in the said proportion, from 19 per cent in the first quarter to 41 per cent in the third. Hindalco's net profit for the first quarter were Rs 644 crore, quarter two ended up with Rs 503 crore and in the third quarter, it posted a net profit of Rs 451 crore.

UNDER PRESSURE
Hindalco: Ebit-to-profit comparison
2011-12 Q1 Q2 Q3
(Ebit in %) 81 74 59
Copper (Ebit in %) 19 26 41
LME ($ per tonne) 2603 2402 2091
Total profit (Rs  crore) 744 576 526
Data: Company and Emkay Research

An analyst said, "Even though profits have been falling because of the fall in LME, we can see that the profits from the copper business has steadily gone up. The business cannot fully replace earnings from aluminium, but at least it is going up when LME is going down."

Copper segment Ebit rose by 51 per cent in the third quarter (year-on-year) to Rs 216 crore due to higher treatment and refining charges and by-product credits. Even though copper brings in more revenues for the company and has been increasing its share in the profits, it will continue to be lower than aluminium.

Ravindra Deshpande, research analyst, Elara Securities (India) Pvt Ltd said, "Hindalco has lined up robust capacity expansion plans in the aluminum segment. Going ahead, we believe, the successful completion of projects and start up of the key mines feeding the expanded capacities will be the key to the absolute Ebitda growth of Hindalco."

Bhattacharya blames the falling LME for the given performance of the business. He said, "In April 2011, LME was around $2,700 per tonne and in December 2011, it was around $2,026 per tonne. This doesn't augur well. Indeed, this is a very difficult situation.”

Currently, the price on the LME is hovering around $2,100 per tonne. The cost of producing has been on the rise and the selling price for the metal has been on the constant decline.

Nearly half of the global production is at a cost of above $2,250 per tonne and close to a million tonne of production is already cut in the current year due to the falling LME.

Bhattacharya says he won't be surprised if there are more cuts in global production. Already, close to one million tonne of production is shut because of the falling LME.

In India, the situation may turn grim in the near future. Coal accounts for one-third of the cost and has been on the upswing since 2009.

Since December 2009, power costs to produce have gone up by 63 per cent. In China, the power cost have gone up by 25 per cent and the world average sits far below at 29 per cent. This has translated into the constant slippage in profits for Hindalco and the burden on the business. In the third quarter for aluminium, even though the net sales grew by 13.1 per cent, the Ebit fell sharply by 33.4 per cent when compared year-on-year.

Bhattacharya continues to maintain that the cost curve warrants a higher LME, something he has been talking since the beginning of the year. He also assures that the portfolio of and copper will help the company in difficult times.

image
Business Standard
177 22
Business Standard

Earnings from aluminium business continue to decline for Hindalco

MD assures portfolio of aluminium, copper will help the company in difficult times

Shubhashish  |  Mumbai 



Aluminium, on the (LME), has been falling since the beginning of the year. So has been the core earnings of and in turn, the profits.

The company maintains that its two businesses, and copper, complement each other well. D Bhattacharya, managing director, Hindalco Industries, says, "If the business is down then the copper business comes to the rescue and when copper prices are under pressure, performs well." This is true to an extent but the fall in profits caused by the business is not getting fully covered by copper.

Hindalco's earnings before interest and tax (Ebit), for aluminium, has been falling constantly since the first quarter of the current financial year. The Ebit share for the white metal has come down to 59 per cent at the end of the third quarter, as against a robust 81 per cent at the end of the first quarter. The prices on the LME has fallen from $2,603 per tonne to $2,091 per tonne in the given nine months. The Ebit share of copper has increased in the said proportion, from 19 per cent in the first quarter to 41 per cent in the third. Hindalco's net profit for the first quarter were Rs 644 crore, quarter two ended up with Rs 503 crore and in the third quarter, it posted a net profit of Rs 451 crore.

UNDER PRESSURE
Hindalco: Ebit-to-profit comparison
2011-12 Q1 Q2 Q3
(Ebit in %) 81 74 59
Copper (Ebit in %) 19 26 41
LME ($ per tonne) 2603 2402 2091
Total profit (Rs  crore) 744 576 526
Data: Company and Emkay Research

An analyst said, "Even though profits have been falling because of the fall in LME, we can see that the profits from the copper business has steadily gone up. The business cannot fully replace earnings from aluminium, but at least it is going up when LME is going down."

Copper segment Ebit rose by 51 per cent in the third quarter (year-on-year) to Rs 216 crore due to higher treatment and refining charges and by-product credits. Even though copper brings in more revenues for the company and has been increasing its share in the profits, it will continue to be lower than aluminium.

Ravindra Deshpande, research analyst, Elara Securities (India) Pvt Ltd said, "Hindalco has lined up robust capacity expansion plans in the aluminum segment. Going ahead, we believe, the successful completion of projects and start up of the key mines feeding the expanded capacities will be the key to the absolute Ebitda growth of Hindalco."

Bhattacharya blames the falling LME for the given performance of the business. He said, "In April 2011, LME was around $2,700 per tonne and in December 2011, it was around $2,026 per tonne. This doesn't augur well. Indeed, this is a very difficult situation.”

Currently, the price on the LME is hovering around $2,100 per tonne. The cost of producing has been on the rise and the selling price for the metal has been on the constant decline.

Nearly half of the global production is at a cost of above $2,250 per tonne and close to a million tonne of production is already cut in the current year due to the falling LME.

Bhattacharya says he won't be surprised if there are more cuts in global production. Already, close to one million tonne of production is shut because of the falling LME.

In India, the situation may turn grim in the near future. Coal accounts for one-third of the cost and has been on the upswing since 2009.

Since December 2009, power costs to produce have gone up by 63 per cent. In China, the power cost have gone up by 25 per cent and the world average sits far below at 29 per cent. This has translated into the constant slippage in profits for Hindalco and the burden on the business. In the third quarter for aluminium, even though the net sales grew by 13.1 per cent, the Ebit fell sharply by 33.4 per cent when compared year-on-year.

Bhattacharya continues to maintain that the cost curve warrants a higher LME, something he has been talking since the beginning of the year. He also assures that the portfolio of and copper will help the company in difficult times.

RECOMMENDED FOR YOU

Earnings from aluminium business continue to decline for Hindalco

MD assures portfolio of aluminium, copper will help the company in difficult times

Aluminium, on the London Metal Exchange (LME), has been falling since the beginning of the year. So has been the core earnings of Hindalco Industries and in turn, the profits.

Aluminium, on the (LME), has been falling since the beginning of the year. So has been the core earnings of and in turn, the profits.

The company maintains that its two businesses, and copper, complement each other well. D Bhattacharya, managing director, Hindalco Industries, says, "If the business is down then the copper business comes to the rescue and when copper prices are under pressure, performs well." This is true to an extent but the fall in profits caused by the business is not getting fully covered by copper.

Hindalco's earnings before interest and tax (Ebit), for aluminium, has been falling constantly since the first quarter of the current financial year. The Ebit share for the white metal has come down to 59 per cent at the end of the third quarter, as against a robust 81 per cent at the end of the first quarter. The prices on the LME has fallen from $2,603 per tonne to $2,091 per tonne in the given nine months. The Ebit share of copper has increased in the said proportion, from 19 per cent in the first quarter to 41 per cent in the third. Hindalco's net profit for the first quarter were Rs 644 crore, quarter two ended up with Rs 503 crore and in the third quarter, it posted a net profit of Rs 451 crore.

UNDER PRESSURE
Hindalco: Ebit-to-profit comparison
2011-12 Q1 Q2 Q3
(Ebit in %) 81 74 59
Copper (Ebit in %) 19 26 41
LME ($ per tonne) 2603 2402 2091
Total profit (Rs  crore) 744 576 526
Data: Company and Emkay Research

An analyst said, "Even though profits have been falling because of the fall in LME, we can see that the profits from the copper business has steadily gone up. The business cannot fully replace earnings from aluminium, but at least it is going up when LME is going down."

Copper segment Ebit rose by 51 per cent in the third quarter (year-on-year) to Rs 216 crore due to higher treatment and refining charges and by-product credits. Even though copper brings in more revenues for the company and has been increasing its share in the profits, it will continue to be lower than aluminium.

Ravindra Deshpande, research analyst, Elara Securities (India) Pvt Ltd said, "Hindalco has lined up robust capacity expansion plans in the aluminum segment. Going ahead, we believe, the successful completion of projects and start up of the key mines feeding the expanded capacities will be the key to the absolute Ebitda growth of Hindalco."

Bhattacharya blames the falling LME for the given performance of the business. He said, "In April 2011, LME was around $2,700 per tonne and in December 2011, it was around $2,026 per tonne. This doesn't augur well. Indeed, this is a very difficult situation.”

Currently, the price on the LME is hovering around $2,100 per tonne. The cost of producing has been on the rise and the selling price for the metal has been on the constant decline.

Nearly half of the global production is at a cost of above $2,250 per tonne and close to a million tonne of production is already cut in the current year due to the falling LME.

Bhattacharya says he won't be surprised if there are more cuts in global production. Already, close to one million tonne of production is shut because of the falling LME.

In India, the situation may turn grim in the near future. Coal accounts for one-third of the cost and has been on the upswing since 2009.

Since December 2009, power costs to produce have gone up by 63 per cent. In China, the power cost have gone up by 25 per cent and the world average sits far below at 29 per cent. This has translated into the constant slippage in profits for Hindalco and the burden on the business. In the third quarter for aluminium, even though the net sales grew by 13.1 per cent, the Ebit fell sharply by 33.4 per cent when compared year-on-year.

Bhattacharya continues to maintain that the cost curve warrants a higher LME, something he has been talking since the beginning of the year. He also assures that the portfolio of and copper will help the company in difficult times.

image
Business Standard
177 22
Widgets Magazine

More News

  • Tech Mahindra logo Job marketplace Saral Rozgar eyes 100 million users
  • HDIL to garner Rs 750 cr from Mumbai land deals GSK puts Mumbai land on the block again
Widgets Magazine
Widgets Magazine

Upgrade To Premium Services

Welcome User

Business Standard is happy to inform you of the launch of "Business Standard Premium Services"

As a premium subscriber you get an across device unfettered access to a range of services which include:

  • Access Exclusive content - articles, features & opinion pieces
  • Weekly Industry/Genre specific newsletters - Choose multiple industries/genres
  • Access to 17 plus years of content archives
  • Set Stock price alerts for your portfolio and watch list and get them delivered to your e-mail box
  • End of day news alerts on 5 companies (via email)
  • NEW: Get seamless access to WSJ.com at a great price. No additional sign-up required.
 

Premium Services

In Partnership with

 

Dear Guest,

 

Welcome to the premium services of Business Standard brought to you courtesy FIS.
Kindly visit the Manage my subscription page to discover the benefits of this programme.

Enjoy Reading!
Team Business Standard