Hindalco PAT may fall on lower sales

Aluminium volumes set to fall 6%, say brokerages; management guidance on capex, projects updates eyed

Hindalco Industries’s net profit for the quarter ended June is estimated to be lower than in the previous quarter, owing to a drop in net sales, brokerages have said.

The company’s aluminium volumes are expected to have fallen six per cent quarter-on-quarter because of disruptions at the Hirakud unit due to heavy rains, Bank of America Merrill Lynch said in a report. “In copper smelting, we expect volumes to decline five per cent quarter-on-quarter due to the maintenance shutdown (at Dahej in Gujarat),” it said.

The company’s earnings before interest, taxes, depreciation and ammortisation margin was expected to shrink, too, due to lower sequential earnings from copper treatment, as well as refining charges, said brokerages.

Hindalco runs custom smelting operations. Its profits do not depend on copper prices, but on variables such as treatment and refining charges, and realisations from the sale of by-products such as sulphuric acid, phosphoric acid and di-ammonium phospate. Aluminium contributes about 75 per cent to Hindalco’s net profit and 35 per cent to its net sales, while copper contributes 25 per cent to the profit and 65 per cent to the revenue. The Aditya Birla Group company is set to announce its earnings for the quarter ended June on August 13. The quarter-on-quarter 8-10 per cent fall in global prices of aluminium was also expected to hit the company'’s realisations, analysts said. However, the rupee depreciating in the period might have cushioned the drop in prices to an extent, they added.

“Led by the revenue decline, earnings before interest, taxes, depreciation and ammortisation is expected to decline 14 per cent year-on-year,” Edelweiss Securities said in a report.

The management’s estimate of the progress and its capex outlook would be the key points to look for, said brokerages.

Hindalco’s project expansion has been delayed due to regulatory clearances and this has hit the company’s stock. The company’s Mahan aluminium smelter in Madhya Pradesh is in the commissioning stage and trial production at the unit has begun, according to the company’s website. The 1.5-million-tonne Utkal alumina refinery project in Odisha was also being commissioned, the website added.

Brokerage guidance

Bank of America Merrill Lynch:
Net profit: 4.235 bln rupees QoQ: (12.1%)
Net sales: 63.756 bln rupees QoQ: (8.8%)

Edelweiss Securities
Net profit: 2.373 bln rupees QoQ: (50.8%)
Net sales: 52.667 bln rupees QoQ: (24.7%)

Nirmal Bang Institutional Equities
Net profit: 2.48 bln rupees QoQ: (49%)
Net sales: 56.74 bln rupees QoQ: (19%)