Hindalco Q2 profit falls 36% on high energy costs, lower aluminium prices

Aditya Birla Group’s flagship Hindalco on Friday reported a 35.5 per cent year-on-year (YoY) decline in consolidated net profit for the September quarter (Q2FY23) to Rs 2,205 crore, due to elevated energy costs and a fall in aluminium prices. The profit for the quarter was below Street estimates of Rs 2,384 crore for the period even as revenue was ahead of estimates.

Hindalco saw revenue from operations increase nearly 18 per cent YoY during the quarter under review to Rs 56,176 crore. Bloomberg consensus estimates had pegged revenue at Rs 43,576 crore.

Consolidated earnings before interest tax depreciation and amortisation (Ebitda) declined by 29 per cent YoY in Q2 to Rs 5,743 crore on higher input costs. As much as 40 per cent of Hindalco’s cost of production constitues energy and coal, sector experts said. Energy and coal prices have doubled over last year, hurting the company’s profitability.

In a media call, Hindalco’s Satish Pai said the top-line was driven by higher volumes and better realisations in the value-added products or downstream aluminium business. The segment grew by 13 per cent versus a year ago in terms of revenue. But the upstream aluminium business, while growing 11 per cent in terms of revenue in Q2, did feel the pinch of the decline in global aluminium prices.

Realisations in base metals, unlike cement, are impacted because of the link to global prices on the London Metal Exchange (LME). The price of aluminium, for instance, has come down from highs of $4,000 per tonne in March 2022 to $2,200 per tonne now -- a slide of 45 per cent, according to data sourced from the LME.

The outlook for aluminium prices remains weak following recession fears in the US and Covid-19 concerns in China, sector experts said. But Hindalco’s US subsidiary Novelis, which makes beverage cans, besides aluminium products for the automotive, aerospace and construction industries, reported strong earnings for the quarter, with higher shipments and better pricing, Pai said.

The copper business outperformed in Q2, reporting its highest-ever metal and copper rod sales, he said.

"If the US does not slip into a deep recession and China manages its zero Covid policy well, aluminium prices will be stable in the coming quarters," Pai said.

Hindalco closed trade on Friday on the BSE up 3.53 per cent over the previous day’s close to Rs 429.75 a share. The company's market capitalisation stands at Rs 96,573.19 crore.