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Hindalco: Experience showing

Jan 30, 2002

At time of the second quarter earnings, 'Fighting hard' is what we said Hindalco Industries Ltd. (HIL) was doing to beat the slowdown. Those efforts seem to be yielding results for the A.V. Birla group flagship company. Turnover have been climbing over the past three quarters. Also, YoY sales growth has been improving over the concerned quarters.

(Rs m) 3QFY01 3QFY02 Change 9mFY01 9mFY02 Change
Net Sales 5,611 5,774 2.9% 16,771 16,837 0.4%
Other Income 393 543 38.2% 1,029 1,307 27.0%
Expenditure 3,029 3,350 10.6% 8,847 9,359 5.8%
Operating Profit (EBDIT) 2,582 2,424 -6.1% 7,924 7,478 -5.6%
Operating Profit Margin (%) 46.0% 42.0%   47.2% 44.4%  
Interest 163 139 -14.7% 492 345 -29.9%
Depreciation 357 393 10.1% 1,064 1,137 6.9%
Profit before Tax 2,455 2,435 -0.8% 7,397 7,303 -1.3%
Tax 804 780 -3.0% 2,440 2,365 -3.1%
Profit after Tax/(Loss) 1,651 1,655 0.2% 4,957 4,938 -0.4%
Net profit margin (%) 29.4% 28.7%   29.6% 29.3%  
No. of Shares 74 74   74 74  
Diluted Earnings per share 88.7 88.9   88.8 88.4  
P/E Ratio   7.7     7.8  

The performance is commendable considering the difficult operating environment. Average prices of aluminium on the LME weakened by 16% in the quarter ended December '01 compared to the same quarter in the previous year. Further, weakness in the global and domestic economy resulted in a subdued demand environment. That said, sales in 3QFY02 have increased led by a 5.1% increase in volumes. This is contrary to last quarter when volumes declined and realisations improved. This change in QoQ performance could be due to higher sale of primary and semi-fabricated products. Exports markets continue to remain weak with slide in volumes and realisations.

While realisations declined, the company could not cut back on costs, which have eaten into operating margins. OPM has declined by 4 and 2.8 percentage points, YoY, during the quarter and 9 months ended December '01. The improved sale volumes from higher production led to higher operating costs. This could indicate that raw material costs have not declined commensurate to the drop in aluminium prices. Also, manufacturing costs have increased due to higher power costs. Power cost is among the largest constituents of operating expenses in production of primary metal.

The company continues to reduce interest expense. Interest costs, YoY, have reduced in all the quarters of the current fiscal. This could be due to the ongoing initiative of re-financing debt to take advantage of the low interest rate regime. Other income has increased on the back of dividends from Indal. Also, investments in debt markets have generated good returns with yields declining.

At Rs 686, the scrip trades on a multiple of 7.8x 9mFY02 annualised earnings. With rise in aluminium prices and indications of a pick up in the domestic economy, valuations of the counter have increased over the past quarter.


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