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Hindalco: Rupee to the rescue - Views on News from Equitymaster
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Hindalco: Rupee to the rescue
Jan 30, 2009

Performance summary
  • Net sales declines by 9.1% YoY during the quarter, led by steep fall in LME prices of aluminium and copper.
  • Decrease in operating expenses leads to expansion of EBITDA margins by 120 bps.
  • Bottomline grows by 0.4% YoY on the back of lower tax expenses and higher other income
  • For the nine months, the bottomline grows by 9.7% YoY on the back of a 2% rise in topline.


Standalone results
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 45,317 41,172 -9.1% 141,693 144,479 2.0%
Expenditure 37,311 33,380 -10.5% 115,627 117,263 1.4%
Operating profit (EBDITA) 8,006 7,792 -2.7% 26,066 27,216 4.4%
EBDITA margin (%) 17.7% 18.9%   18.4% 18.8%  
Other income 1,143 1,505 31.7% 3,487 5,419 55.4%
Interest (net) 622 932 49.8% 1,816 2,548 40.3%
Depreciation 1,460 1,611 10.3% 4,334 4,771 10.1%
Profit before tax 7,067 6,754 -4.4% 23,403 25,317 8.2%
Extraordinary income/(expense)            
Tax 1,640 1,306 -20.4% 5,519 5,702 3.3%
Profit after tax/(loss) 5,427 5,448 0.4% 17,884 19,615 9.7%
Net profit margin (%) 12.0% 13.2%   12.6% 13.6%  
No. of shares (m) 1,226.0 1,700.3   1,226.0 1,700.3  
Diluted earnings per share (Rs)*         17.9  
Price to earnings ratio (x)*         2.7  
(* on trailing twelve months earnings)

What has driven performance in 3QFY09?
  • Let us have a look as to how the two main segments of the company viz. Aluminium and Copper performed during the quarter:

  • Aluminium: The segment accounted for 48% of the company’s total revenues during the quarter as against 38% during 3QFY08. The division recorded an impressive growth in revenues of 14% YoY on back of highest ever volumes achieved during the quarter. However, 25% fall in LME prices and spiraling input cost squeezed the margins, despite gains from weaker rupee and thus led to an 8.4% decline in segmental PBIT. Furthermore, contraction in domestic demand for downstream products resulted in an adverse product mix, thus adversely impacting the segmental profits.

  • Copper: The segment accounted for 52% of the company’s total revenues during the quarter as against 62% during 3QFY08.The revenues from the segment fell by 23.8% YoY on account of 46% lower LME prices during the quarter. However, segmental PBIT rose by 23.1% YoY on account of better by-product realisation, operational efficiencies and forex translation impact. Had the TcRc (Treatment Charges and Refining Charges) not fallen by 33%, the segmental PBIT would have been even greater during the quarter.

    Segmental break-up…
    (Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
    Aluminium            
    Revenues 17,360 19,798 14.0% 52,892 60,433 14.3%
    PBIT 5,782 5,298 -8.4% 18,783 19,953 6.2%
    PBIT margin 33.3% 26.8%   35.5% 33.0%  
    Copper            
    Revenues 28,062 21,395 -23.8% 84,113 89,107 5.9%
    PBIT 940 1,157 23.1% 3,282 3,324 1.3%
    PBIT margin 3.3% 5.4%   3.9% 3.7%  

  • As far as the overall EBITDA margins of the company are concerned, operating expenses declined more than the topline and thus EBITDA margins expanded by 120 bps. Raw materials cost (as % sales) declined to 55.6% during the quarter, while other expenditure (as % sales) remained stable at 7.3%.

    Cost break-up…
    (Rs m) 3QFY08 3QFY09 Change
    Raw materials 27,650 22,872 -17.3%
    % sales 61.0% 55.6%  
    Staff cost 1,440 1,760 22.2%
    % sales 3.2% 4.3%  
    Power and fuel 4,918 5,728 16.5%
    % sales 10.9% 13.9%  
    Other expenditure 3,303 2,988 -9.5%
    % sales 7.3% 7.3%  

  • The bottomline grew by 0.4% YoY despite decline in topline and operating profits. This was mainly on account of rise in other income and lower tax expenses. Furthermore, had there been no rise in the interest cost, the bottomline growth would have been more.

What to expect?
At current price Rs 49 the stock is trading at a price to book value multiple of 0.3x the company’s expected FY11 book value per share. The company’s topline growth has come in line with our expectations, while bottomline has come better than our expectations despite the slowdown in the overall industry and adverse LME prices. This was mainly on account of tremendous improvement in margins in copper business and favorable rupee impact. We remain positive on the stock from medium term perspective.

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