Hindalco misses estimates in Q3

Lower profitability in copper business partly offsets gains from higher aluminium volumes and prices

Hindalco Industries, the country's largest aluminium producer, on Monday reported a lower-than-expected net profit of Rs 320.56 crore in December quarter, on a standalone basis. Bloomberg consensus estimate had pegged the figure at Rs 396 crore. Even though revenues from both aluminium and copper segments improved, the miss was largely led by weaker-than-expected by-product (copper division) prices like those of sulphuric acid and di-ammonium phosphate. Raw material (largely energy) prices for making aluminium also came marginally higher than analysts’ estimates.

The Aditya Birla group company had reported a loss of Rs 32.75 crore in the same quarter last year. Sequentially, net profit was lower by 27 per cent as the bottom line of September quarter included a net exceptional (one-off) gain of Rs 85 crore.

Standalone revenues stood at Rs 9,827 crore in the quarter gone by, up 15 per cent from last year, but higher than the Rs 9,400 crore indicated by Bloomberg consensus estimate.  

“Revenues for the quarter were up, driven by increase in average realisation for both aluminium and copper, along with weak rupee and higher aluminium volumes. Aluminium volumes grew nine per cent on the back of strong volumes as well as realisations,” said the company in its release on Monday. “Copper revenue increased 19 per cent on account of higher copper prices, but were partly negated by lower by-product prices of di-ammonium phosphate and sulphuric acid,” it said. 

The aluminium segment also saw strong improvement in profitability as Ebitda (earnings or profit before interest, tax, depreciation, and amortisation) at Rs 876 crore more than doubled from Rs 354 crore in the year-ago quarter and came higher than Rs 808 crore in the September 2016 quarter. Higher production with stable operations, supportive prices, and lower input costs resulted in a record Ebitda, up 147 per cent year on year, said the company; sequentially, the increase in Ebitda was mainly driven by higher rate.

However, copper segment reported an Ebitda of Rs 330 crore, lower than Rs 366 crore posted in year-ago quarter and Rs 352 crore in the September quarter. The company said the fallout of lower volumes and lower by-product rate in the copper segment, coupled with lower treasury income, were responsible for sequential decline. Notably, the TC/RC (treatment charges-refining charges) too remained lower, impacting year-on-year numbers as cathode production volumes were flat at 94,000 tonnes and copper-cathode rod production was lower by 8,000 tonnes, impacted by lower demand.

Overall, Hindalco’s Ebitda at Rs 1,405 crore surged 64 per cent year on year but came lower than Rs 1,493 crore in the September quarter, thanks to the pressure in copper business. Company said the year-on-year gains reflect a robust performance with stable operations.

Hindalco said its coal blocks — Gare Palma IV/4 and Gare Palma IV/5 mines along with Kathautia mines — commenced operations this month, which would improve coal security going ahead. This is positive from a medium-term perspective looking at rising coal prices, and given that in the near term Hindalco will continue sourcing some of its coal needs through e-auctions, prices of which are firming up. 

Hindalco’s prospects remain strong, with improving aluminium volumes and better prices; even the copper segment’s profitability may rebound. The demand for bars is improving and sulphuric acid prices have firmed up in January as impact of demonetisation continued to wane. Improvement in regional aluminium premium holds the key for further upside in the stock price and so does debt reduction (with improving cash flows). 

The stock closed with a gain of 1.85 per cent at Rs 185 on Tuesday. Even peers such as Vedanta gained on news of closure of copper mines in Chile due to strike.