Shobhana Subramanian / Mumbai Jul 03, 2009, 00:39 IST
Given the sharp fall in aluminium prices, it was no surprise that Hindalco turned in weak numbers for the March 2009 quarter with stand-alone recurring profits coming off by about 80 per cent. Given that the global demand for the metal has been weak consolidated profits (including Novelis) for 2008-09 were down 80 per cent. Novelis may have another difficult year with demand in its key markets Europe and North America, were it sells around three-fourths of its volumes, not showing signs of a revival.
Besides, the auto industry remains in a bit of a slump as does the construction industry. Indeed aluminium prices aren’t expected to firm up in the near future with inventory levels still high at around 46 days of global consumption levels.
While companies have scaled back production, industry watchers say that may not be enough for prices to harden. The management is taking several steps to tackle the situation; it plans to close down a sheet mill in the UK and may not operate a couple of mills in Canada.
Although demand in the home market is expected to look up, analysts are worried that Hindalco may slip into the red this year with revenues coming off to around Rs 48,000 crore, a drop of around 25 per cent over 2008-09.
It’s a pity the company needs to raise money at a time like this — it plans to pick up Rs 2,400 crore through a placement to institutions. But then the company’s net-debt to equity ratio is already over 100 per cent.
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