OREANDA-NEWS. February 10, 2012. Superior results despite adverse macro-economic condition and steep inflationary cost pressure

Financial highlights

(In Rs. crore)

Q3FY12

Q3FY11

9MFY12

9MFY11

Net sales

                6,647

                5,975

             18,950

             17,013

Other income

                       90

                       61

                    444

                    212

PBITDA

                   805

                   801

                2,695

                2,483

Depreciation

                    175

                    171

                    524

                    512

Net interest

                       79

                       52

                    214

                    164

Profit before tax

                   551

                   578

                1,958

                1,807

Provision for taxes

                    100

                    118

                    360

                    379

Net profit

                   451

                   460

                1,597

                1,429

Basic EPS - rupees

                   2.35

                   2.41

                   8.34

                   7.47

Hindalco, the Aditya Birla Group flagship company, has announced its unaudited results for the third quarter (Q3) ended December 31, 2011.

Net sales and operating revenue at Rs. 6,647 crore in Q3FY12 are up 11 per cent over Q3FY11, driven by higher volume and marginally better realisation.

PBITDA is maintained at Q3FY11 levels. The benefits of higher volume and realisation have been negated by the cost surge of over Rs. 300 crore. Other income is higher by Rs. 29 crore due to improved treasury yield and enhanced corpus. This has been offset by higher interest and financing charges on account of higher rates.

Net profit is marginally lower at Rs. 451 crore in Q3FY12 from Rs. 460 crore in Q3FY11.

For the nine months ended December 31, 2011, revenues rose by 11 per cent, PBITDA increased by 9 per cent with an increase in net profit by 12 per cent.

Higher volumes and slightly improved realisations resulted in 13 per cent improvement in aluminium revenues. However, the EBIT is lower at Rs. 310 crore due to spiralling input cost of around Rs. 250 crore.

The capital employed for aluminium business at Rs. 21,172 crore as on December 31, 2011 includes Rs. 13,631 crore relating to Mahan, Hirakud Rolled and Aditya Aluminium projects. The balance largely relates to the existing aluminium operations.

In the copper business, revenues stood at Rs. 4,418 crore vs. Rs. 4,000 crore in Q3FY11, on the back of higher LME and by-product credits. Copper volumes also rose on account of improved efficiency. Profit before interest and taxes increased by 51 per cent to Rs. 216 crore from Rs. 143 crore due to improved efficiencies, higher Treatment and Refining Charges (TcRc) and by-product credit, offset to some extent by higher energy costs.

Operational review

Aluminium

Alumina and aluminium production registered growth of 7 per cent and 8 per cent respectively backed by improved operating efficiencies. Metal production rose on the back of continued focus on asset-sweating.

Downstream production also grew in the latter part of Q3FY12. Extrusion production was lower, consequent to the lock-out at the company’s Alupuram unit in Kerala. This has since been lifted (December 24, 2011).

In tonne

Q3FY12

Q3FY11

9MFY12

9MFY11

Alumina

343,086

320,310

1,010,056

1,008,800

Metal

146,374

135,829

430,077

399,215

Wire rods

25,247

23,672

73,092

71,155

FRP

55,598

46,188

157,581

151,603

Extrusions

7,190

9,292

21,665

28,546

Copper
Quarterly cathode production was successfully ramped up after the planned shutdown in the last quarter. Cathode production was up by 9 per cent.  Value-added CCR production was higher by 11 Kt.

In tonne

Q3 FY12

Q3 FY11

9MFY12

9MFY11

Cathode

87,748

80,224

235,528

250,637

CCR (own)

38,426

26,996

106,707

111,465

Expansion projects

All the projects are progressing well.  There is no material development to report since the last quarterly press release.

Industry outlook

The sentiment in the financial markets has improved since the beginning of this calendar year. The improvement is, however, vulnerable to the looming macro-economic risks pertaining to the European crisis and slowing global growth momentum. These risks could have implications for the commodity prices, including metals – even though energy inputs have an upside risk pertaining to geo-political developments.

Aluminium
World aluminium consumption growth in Q3FY12 was 6 per cent over the corresponding period last year. Other than Europe, most of the economies witnessed growth in consumption with China growing in double digit. Aluminium prices on the London Metals Exchange (LME) averaged USUSD 2,089 in Q3FY12 – a drop of 13 per cent from the previous quarter. LME stocks were at the higher level of 4.9 million tonne, an increase of 0.4 million tonne in December, attributed to attractive warehousing deals and low interest rates.

In response to low metal price and high operating cost, some of the major producers have announced production cuts, which are expected to support and boost the metal prices in the next quarter. While the macroeconomic environment has weakened significantly, the outlook for aluminium demand appears positive and will be led by North America, China and major emerging nations.

Indian consumption is at levels similar to that of 2010 due to lower demands in the automotive and building and construction sectors in this quarter.

Copper
Global refined copper consumption was virtually flat during the quarter, reflecting the overall weak economic conditions. Recently, copper prices on LME have hardened on account of falling trend in exchange inventories, sharp rise in Chinese imports and the improvement in the risk appetite. The continuation of the momentum of Chinese imports is, however, uncertain.

Indian refined copper market, which was earlier exhibiting weakness, improved in Q3 due to demand from the cables sector. Other user segments like winding wire, automobile and transformers were relatively flat.

In the concentrates market, supplies are encouraging after resumption of normal production in most of the mines hit by strikes or technical issues in Q2FY12. This year’s annual negotiations for term contracts have not been able to produce a single benchmark. Annual settlements of TcRc between miners and smelters for the next year are 7-13 per cent better than those in the previous year.

The outlook on realisation of co-products like sulphuric acid and Di-Ammonium Phosphate (DAP), which were generally robust in 2011, remains softer for the coming quarters.

Company outlook

Volatile LME and foreign exchange fluctuation along with spiralling energy cost is posing a major challenge in the short term context. Hindalco’s portfolio of LME - neutral copper smelting operation and integrated aluminium operation is providing the strategic balance in the volatile commodity cycle.

Capacity expansions under implementation will enable the company to grow at a rapid pace and consolidate its leadership even further. The focus continues to be on timely completion of the projects and successful ramp-up of production.