Aluminium drives Q1 profits for Hindalco; copper segment stays profitable

Stable plant operations and better realisations help aluminium segment profits

After a strong show by Hindalco's US subsidiary Novelis, it was the turn of domestic operations to register impressive performance. Though revenues from operations have grown just 2.4 per cent year-on-year (flat sequentially), it was a smart jump in aluminium segment profitability that aided a sharp 17.5 per cent year-on-year jump in operating profits.  

The good performance of the aluminium segment was on account of better realisations and stable plant operations helping the segment profits grow 35 per cent year on year, while the same on a sequential basis was 21 per cent. What helped was higher aluminium prices on the London Metal Exchange (LME) with the metal gaining 18 per cent year-on-year during the quarter.  

The copper segment, too, did well maintaining its profitability, helped by improving by-product realisation and rising continuous cast rod (CCR) production (up 56 per cent due to the ramp-up of the new CCR-3 facility), though copper cathode production was down due to planned maintenance shutdown in one of the smelters. 

Strong operational performance and lower interest costs helped the bottom line, offsetting the impact of input costs, mainly of coal and furnace oil. The interest expense was lower by 23 per cent, which the company attributed mainly to the pricing of long-term project loans and loan repayments made during last year. The company's standalone profits, including from Utkal alumina, more than doubled to Rs 7 billion. 

Earlier, Novelis had reported its highest ever quarterly adjusted earnings before interest, taxes, depreciation, and amortisation (Ebitda) of $417 per tonne in June 2018 quarter compared to $368 in the year-ago quarter. Higher automotive sheet shipments, operating efficiencies, recycled content and better cost management continues to help Novelis, which is in the midst of ongoing expansions. Its investments in automotive finishing capacities in Kentucky, US, and Changzhou, China, are on schedule and will add 300 KT by FY21. Plans to acquire US-based Aleris through Novelis will drive its value-added capacities by 1.0 MT and also help Novelis' entry into new segments such as aerospace products, etc. After the Novelis results, analysts at Edelweiss said that they remain upbeat on the company due to its focus on the margin-accretive auto and speciality segments that should generate strong cash flow. The strong domestic performance should further strengthen confidence. Though near-term volatility in base metal prices because of trade war concerns and strengthening of the rupee might keep stock prices under check, analysts maintain their positive stance on the stock with a one-year view.