Apr 9, 2007|
Hindalco: A brief overview...
Hindalco Industries Limited, the flagship company of the Aditya Birla Group, is structured into two strategic businesses, aluminium and copper (which it acquired from another group company (Indo Gulf) in 2002) and is an industry leader in both. Hindalco's integrated operations and operating efficiency have positioned the company as Asia's largest integrated primary producer of aluminium and among the most cost efficient producers globally. Its copper smelter is the world's largest custom smelter with 500,000 tpa capacity at a single location. In India, Hindalco enjoys a leadership position in speciality alumina, primary aluminium and downstream products. Hindalco's major products in aluminium segment include standard and speciality grade alumina and hydrates, aluminium ingots, billets, wire rods, flat rolled products, extrusions, foil and alloy wheels. The copper plant is backed by captive power plants, oxygen plants, as also by product facilities for fertilisers and precious metals. A captive jetty with cargo handling capacity of over 4 MTPA facilitates easy transport of copper concentrate and other imported raw materials.
In FY06, on the back of strong aluminium prices on the LME, higher utilisation levels coupled with an improved product mix and focus on speciality alumina, revenues from the aluminium business grew by almost 15% on a YoY basis. The company is witnessing increasing contribution from value-added products, which not only have better margins but also low volatility in realisations.
During FY06, the copper business of the company faced disruptions on account of various problems, both external and internal. The heavy rainfalls that resulted in serious dislocation of essential inputs and personnel impacted operations. In spite of lower production, revenues rose by almost 26% YoY on account of high copper prices on LME that led to better prices.
|Operating profit margin (%)
|Profit before tax
|Net profit margins (%)
While the company's net sales (net operating sales) have grown at a CAGR of 51%, operating profit registered a slightly lower CAGR of 47% during the same period on account of rising operating costs. On account of captive access to power and raw materials, the company has long been enjoying the status of possessing one of the most efficient aluminum smelters in India and globally. Apart from modernisation and effective utilisation of available resources, the company has gained a competitive advantage relative to the global low-cost peers, on account of its increasing focus on captive coal. The copper business was proving to be a drag on the overall performance of the company. A combination of the copper division returning to profitability on account of improved Tc/Rc margins, cost reduction measures, de-risking its copper business by acquiring copper mines and improved aluminum business fundamentals helped the company post higher operating profits. The operating margins though, have dropped marginally.
Traditionally, Hindalco has had a strong balance sheet. It is a cash rich company with cash balance of Rs 9 bn as on FY06. The company recently acquired Atlanta-based Novelis- the largest flat rolled aluminium maker to achieve scale and a global footprint. The deal will not only give an entry into value-added aluminum products but will transform Hindalco into the world's largest player in the downstream business of aluminum products. The combination of Hindalco and Novelis will establish a global integrated aluminum producer with low-cost alumina and aluminum production facilities combined with high-end aluminum rolled product capabilities. The US$ 6 bn imputed value of Novelis includes a cash payment worth US$ 3.6 bn to Novelis' shareholders and debt worth US$ 2.4 bn. As far as the financial implications are concerned, the move is likely to lend stability to Hindalco's earnings as earlier, it was exposed to price volatility that exists at the end user market. However, Hindalco has stretched its balance sheet to acquire Novelis and as a result, cash flows will come under pressure until the debt burden is reduced.
In line with the characteristics of any cyclical industry, strong aluminium prices have triggered plans of expanding aluminium capacities and thus, there could be some demand-supply mismatch going forward. China continues to be the deciding factor by virtue of its production and consumption power. With the Chinese economy not showing any signs of cooling off, the demand for metals continues to outpace supplies. Further though, we remain positive on the prospects of the company as the outlook for both its businesses - aluminium and copper - remain promising in the medium-term but the cyclicality of the aluminium industry is an aspect investors need to be careful about. Going forward, the improved product mix and increasing contribution of value added products would help curtail the volatility in earnings of the company.
More Views on News
Feb 22, 2017
Hindalco Industries has reported a 14.5% YoY increase in the topline while the bottomline came at Rs 3.2 billion.
Dec 21, 2016
SAIL has reported a 21.4% YoY increase in the topline while the bottomline reported a loss of Rs 7.31 billion.
Dec 19, 2016
Tata Steel has reported a 0.1% increase in the topline while the bottomline was in red in 2QFY17.
Nov 30, 2016
Hindalco Industries has reported a 1.1% YoY increase in the topline while the bottomline has accelerated by 255.4% YoY.
Oct 25, 2016
Hindustan Zinc has reported an 11% decline in the topline while the bottomline has declined by 15.4%.
More Views on News
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 10, 2017
Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407