Over the past year, shares of Hindalco have fallen 45 per cent compared to a 13 per cent fall in the Sensex. Hindalco’s underperformance has continued even over the past couple of months, a period when other metal stocks staged a recovery of sorts. Though the company reported better-than-expected numbers, the market believes there are no real triggers to support the stock price in the near term as greenfield projects are expected to see more delays.
The company has shown an improvement in its operating profit in the fourth quarter, as both aluminium and copper volumes are up. The improvement is primarily due to improved realisations due to a better product mix, higher copper production and cost control. This has also helped the company shore up its bottomline. Its earnings before interest, depreciation, tax and amortisation has come in at Rs 860 crore, about 16 per cent higher than expected. The Street was expecting a standalone profit after tax of Rs 480 crore, but the company has clocked Rs 640 crore. Though this is down 10 per cent year-on-year, Hindalco has seen better aluminium volumes, improvement in the copper TC/RC (treatment and refining cost) and an increase in other income.
While aluminium prices are expected to improve to $2,400/tonne in FY14 and Novelis is also expected to show an improvement in profitability, there are concerns over completion of projects. That the company has not shared details of project progress in the quarterly release, has also worried markets. CLSA says: “The company’s three greenfield projects — Mahan smelter, Utkal alumina refinery and Aditya smelter — have already seen delays of 9-15 months and we see risks of further delays. Hindalco was targeting commissioning of Mahan smelter in Q1 FY13 but is yet to achieve the milestone.”
Analysts also believe the company has reached the peak of its current capacity and growth will only come from new capacities. According to MFSL Research, given the ongoing delays in capital expenditure, sales growth will taper in the coming quarters.