OREANDA-NEWS. February 14, 2011. Aditya Birla Group Company, Hindalco Industries Limited's performance for the third-quarter has been better than that in the comparable quarter of the previous year.

Net sales and operating revenue at Rs.5,975 crore in Q3FY11 were up 12% over Q3FY10, driven by better geographic mix and improved realisation, despite lower metal volumes. Metal volumes were impacted due to power outage at the Hirakud smelter and cooling tower outage at Dahej smelter, which, in turn affected production.

PBITDA is maintained despite lower metal volume, with improved efficiencies and planned cost saving initiatives. The company benefitted from higher LME in its Aluminium Business and better by-product realisation in Copper Business.

The results for the quarter could have been better but for the cost escalations and plummeting Copper Treatment and refining charges (TcRc). Additionally, the disruption of production at the Hirakud Smelter and cooling tower outage at the Dahej smelter affected the PBITDA. Lower interest and financing charges were due to lower average interest rate.

Quarterly PBIDTA has been impacted by around Rs. 200 crore of which Rs. 100 crore relates to one timers related to Hirakud and Dahej outages and balance is on account of higher carbon and energy cost along with lower TcRc compared to Q3FY10.

Profit before tax is higher by 4% at Rs. 578 crore vis-à-vis Rs. 557 crore in Q3FY10. Net profit increased by 8% to Rs. 460 crore vs. Rs. 427 crore in Q3FY10.

Business Segment Results

Aluminium Revenue grew from Rs.1,884 crore in Q3FY10 to Rs.1,977 crore in Q3FY11, a rise of 5%. Strong upward aluminium prices on the LME, coupled with an improved geographic-mix were the growth drivers for the Aluminium Business. Lower sales volume due to Hirakud smelter outage and appreciating Rupee impacted the Company's performance. However, despite the strong inflationary pressures, profit before interest and taxes increased by 6% from Rs. 438 crore to Rs. 465 crore.

Production at the Hirakud Smelter was affected since early July due to pot outage caused by heavy rains and lightning. This affected production to the extent of 8.9 Kt and 26.5 Kt for Q3 and 9-month ending Dec 31, 2010 respectively, compared to corresponding periods of the previous year. Pot start-up and restoration work has been completed and operations have stabilised at the Smelter.

In the Copper Business, revenues rose by 17% to Rs. 4,000 crore from Rs. 3,432 crore in Q3FY10, mainly on account of higher copper LME. Given, that the Copper Business is a custom smelting operation, with offset hedging programme, Profit before interest and taxes was not significantly impacted by the gain or loss on changes in LME. Profit before interest and taxes was lower at Rs.143 crore from Rs.159 crore due to lower volume on account of cooling tower outage, lower TcRc, higher energy costs and appreciating Rupee, despite better efficiencies and improved mix.

A breakdown of cooling tower of Sulphuric Acid Plant- 3 of Dahej Copper Plant in November 2010 resulted in the disruption of production in Smelter-3. The repair and restoration of the cooling tower has been completed and normal production has resumed. The loss of cathode production is estimated at around 10 Kt.

In both the cases, necessary steps for insurance claims have been initiated under the Company's comprehensive insurance policy, covering property damage and business interruptions.

Strategic Initiatives
Novelis Inc., the Company's wholly-owned subsidiary and a global leader in aluminium rolled products and beverage can recycling, has completed refinancing transactions to recapitalise its Balance Sheet. The refinancing consisted of the sale of USD 1.1 billion of 8.375% Senior Notes due 2017, USD 1.4 billion of 8.75% Senior Notes due 2020 (collectively, the "New Senior Notes") and a new USD 1.5 billion secured term loan credit facility.

The proceeds were used to refinance Novelis' prior secured term loan credit facility, to fund its previously announced cash tender offers for any and all of its USD 1.124 billion 7.25% Senior Notes due 2015 (the "7.25% Notes") and its USD 185.0 million 11.50% Senior Notes due 2015 (the "11.50% Notes") and to pay premiums, fees and expenses associated with the refinancing. In addition, a portion of the proceeds were used to fund a distribution of USD 1.7 billion as a return of capital to Novelis' parent company, AV Metals, Inc. Canada, which in turn repatriated the same as return of capital to its parent, AV Minerals (Netherlands) B.V., a fully owned subsidiary of Hindalco. Novelis also replaced its existing USD 800 million asset based loan ("ABL") credit facility with a new USD 800 million ABL facility. The new ABL terms and conditions are similar to the existing facility.

AV Minerals (Netherlands) B.V. has used this amount for repayment of its outstanding debt and to return USD 650 million to Hindalco by way of reduction of the nominal value of its shares in the current quarter

The new capital structure has strategic implications for Hindalco and Novelis. Novelis' ability to optimise its balance sheet is a testament to the management actions taken over the past two years to strengthen its core business and financial position. The refinancing provides Hindalco and Novelis with increased flexibility to address growth opportunities in order to further strengthen their global footprint.

Rating: CRISIL has recently upgraded its rating on the long-term bank facilities of Hindalco Industries Ltd (Hindalco) to 'AAplus' from 'AA'.

Operational review

Aluminium

The total Alumina production is lower by 6% in Q3FY11 on back of scheduled maintenance shutdown at Renukoot. Alumina production at Muri is 11% higher over Q3FY10.

Metal volumes have been lower on the back of the Hirakud outage. Downstream production is lower by 16% in the case of Flat Rolled Products and 12% in case of extrusion products. Given the integrated nature of the Company's operations, any disturbance in upstream operations has a cascading impact on downstream facilities.

Production (Mt)

Q3 FY11

Q3 FY10

9M FY11

9MFY10

Alumina

320,310

339,899

1,008,800

963,522

Metal

135,829

142,048

399,215

417,382

Wire rods

23,672

23,363

71,155

68,726

Flat Rolled products

46,188

55,030

151,603

157,484

Extrusions

9,292

10,531

28,546

29,158

Copper
Quarterly cathode production is lower by 10% due to the cooling tower breakdown. The value-added CCR production is lower by 18% based on market demand.

Production (MT)

Q3 FY11

Q3 FY10

9MFY 11

9MFY 11

Cathode

80,224

89,152

250,637

258,626

CCR (Own)

26,996

32,969

111,465

93,671

Brownfield Expansion Projects

Hirakud Smelter Expansion: The smelter expansion from 155 KTPA to 161 KTPA is nearing completion and will soon be taken on the production line. Further expansion from 161 KTPA to 213 KTPA, along with a 100 MW Captive Power Plant [CPP] will be completed in Q4 FY12. Major orders have been placed. Engineering is nearing completion and civil work is in progress.

The next phase of expansion of the Smelter from the proposed 213 KTPA to 360 KTPA, with a corresponding increase in CPP capacity from 467.5 MW to 967.5 MW is under evaluation. The environmental clearance is already in place.

Hirakud Flat Rolled Products Project: This project is underway for the transfer of all key equipment for flat rolled production from Novelis plant at Rogerstone, UK to Hirakud. In addition to the equipment from Novelis, orders have also been placed for other equipment to balance production. This will enable the Company to produce a wide range of superior engineering products, including can-body stock for the local and export markets. The project is slated for completion in October 2011. Nearly 1,800 people are working at the site for completion of civil and structural jobs.

Belgaum Special Alumina: The production of value-added special alumina at the Belgaum plant is proposed to be ramped up to 316 KTPA from 138 KTPA. The proposals for an 18 MW co-gen power plant and a railway siding facility are also being evaluated from the perspective of cost reduction.

Greenfield Projects

Utkal Alumina Project (UAIL): The construction of the alumina refinery, along with a 90 MW captive co-gen plant is in progress at UAIL, a 100% subsidiary of the Company. The output from UAIL would be sufficient to feed alumina to the Mahan and the Aditya smelters. Engineering for refinery and captive co-gen plant is nearing completion. Contractors have mobilised more than 8,000 people at the site. Erection of major equipment like boilers, evaporators and turbines has begun. Around 87% of the project cost has already been committed.

The total cost of the project is expected to be Rs.5,600 crore without financing cost. Financial closure of the project has been achieved and Rs. 1,500 crore is already drawn down against the negotiated debt facility. Its commissioning is expected to begin in early 2012.

Mahan Aluminium Project: The 359 KTPA aluminium Smelter, along with a 900 MW Captive Power Plant (CPP), is coming up in Bargwan, Madhya Pradesh.

Major approvals are in place and site activities are progressing well. Contractors have mobilised about 17,000 people at the site. The engineering is near completion and major equipment for both smelter and the CPP have started arriving at the site. Civil foundations and fabrication and erection of structures have progressed substantially in both the smelter and the CPP. Around 90% of the total project cost (without financing cost) of around Rs. 9,200 crore has been committed. The project is expected to be commissioned in October 2011.

The coal requirement for the CPP will be primarily met from Mahan Coal Block being developed by Mahan Coal Limited (MCL), a joint venture between the Company and Essar Power Limited. As most of the land of coal block is in the forest area, MCL is required to obtain approval of Ministry of Environment and Forests (MoEF), Government of India under Forest (Conservation) Act, 1980. The proposal for Forest Clearance was forwarded to MoEF by Government of Madhya Pradesh in December 2007 for Stage-1 clearance and considered by Forest Advisory Committee (FAC) of MoEF in its four meetings held from time to time and finally in December 2009. MCL has complied with all the directions of the FAC.

As the Mahan Coal Block was included under the category of 'NO GO' area, the FAC has not given its decision on MCL's application for forest clearance. The Mahan coal block is awaiting forest clearance approval before further progress can be made. A Group of Ministers [GoM] has been set up by the Prime Minister to resolve all cases where there is significant progress on construction of the down-stream projects and mining approval is awaited from the Forest Department.

Inter-Ministerial Team comprising officials from CEA, MoP, MoC and MoEF visited the end-use project sites in July 2010 and confirmed that in end-use project, significant investments have already been made / committed in acquisition of land, placement of orders and work has progressed considerably. Considering that our projects are at advanced stages of implementation, it is expected that our block will be recommended for forest clearance.

As an interim measure, we have applied to Ministry of Coal for temporary supply of coal (tapering linkage) to the Mahan CPP, until the Company's own mines commence operating at full capacity.

Financial Closure: The Company has mandated SBI Capital Markets Ltd, Citibank, Kotak Mahindra Bank and The Royal Bank of Scotland for launching Rupee term loan syndication for achieving financial closure for the Mahan Aluminium project and hope to have facility in place within a short time.

Aditya Aluminium Project: A 359 KTPA aluminium Smelter, along with a 900 MW CPP, identical to the Mahan Project, is coming up in Orissa.

All approvals are in place. Critical long lead equipment orders have been placed for both the Smelter and the CPP. Preliminary site activities like area grading and boundary walling are on. Around 77% of the total project cost has been committed. The project team has estimated a total cost of Rs.9,200 crore without the financing cost. The project is expected to be commissioned by end 2012.

Aditya Refinery Project: A 1.5 million TPA Alumina Refinery, along with a 90 MW co-gen plant, replica of the UAIL, has been planned to come up in Orissa. The project cost is estimated at Rs. 6,000 crore without the financing cost. It is slated for commissioning by end 2014.

Jharkhand Aluminium Project: For the 359 KTPA aluminium Smelter, along with a 900 MW CPP in Sonahatu, Jharkhand, the land acquisition process has begun. The process for obtaining regulatory clearance has also commenced. Tubed coal mine has been allotted to the project jointly with Tata Power. This project seeks to replicate the Aditya / Mahan Smelter. The project cost is estimated to be about Rs.10,000 crore without the financing cost. Its commissioning is expected in mid 2015.

Industry outlook

Aluminium
Aluminium prices have crossed USD 2,450/t in December, highest in 2010. This was fueled by strong demand globally from all the sectors. Global Aluminium demand in Q3FY11 reflected a growth of 12.7% over Q3 FY10. Good growth has been observed in almost all the major regions.

Global demand is expected to be robust for rest of the year. Indian industry had a good y-o-y growth in Q3 FY11.

Copper
International copper prices have hardened substantially on account of the continued recovery in demand and strong interest by financial investors. Global refined copper supply lagged behind demand in recent quarters - a trend that is expected to continue into 2011. This could help copper prices sustain at high level.

Refined copper demand in India has been adversely affected in the major consuming segment, i.e. wire and cable segment. At high copper prices, customers of this segment are facing substitution by scrap-based products due to the price gap. The trend for auto and transformer segments remains broadly positive.

The Treatment and refining charges (TcRc) in the spot market have improved sharply on account of temporary market surplus. Negotiations between major global miners and smelters for annual TCRC benchmark are currently underway, and are likely to result in terms that could be more favourable to smelters vis-a-vis the previous year. However, the overall tightness in the concentrates supply, though improved from previous year, is expected to continue, resulting in the likely softening of TcRc in the spot market, going forward.

Company Outlook

The upward trends in the commodity prices and also demand in the key markets in which the company operates are encouraging. However higher input costs, especially the cost of coal is a concern. With aggressive cost containment, enhanced asset productivity, higher share of value added products and strong fundamentals, the outlook of the Company remains positive in both the short term and long term.

Statements in this "Press Release" describing the company's objectives, projections, estimates, expectations or predictions may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the company's operations include global and Indian demand supply conditions, finished goods prices, feed stock availability and prices, cyclical demand and pricing in the company's principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries within which the company conducts business and other factors such as litigation and labour negotiations. The company assume no responsibility to publicly amend, modify or revise any forward looking statement, on the basis of any subsequent development, information or events, or otherwise.