The Aditya Birla flagship company, Hindalco Industries Ltd., has reported a staid operating and financial performance for the fiscal year ended FY01. Unexciting as it maybe, the company has lived up to its genre of 'old economy' with a rock solid performance.
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The growth in sales in commendable considering that the aggregate growth in production has been only 1%. Growth in production was constrained as the company already operated above rated capacity. For the current fiscal the company clocked a capacity utilisation of 104% as compared to 103% in the previous year. Consequently, any volume led sales growth was fettered. The reported growth in turnover has been achieved by increased sweating of assets and better product mix focusing towards higher value added items.
To overcome the current constraints the company has announced a brownfield expansion plan at its Renukoot facility. It aims to increase smelter capacity by 100,000 tonnes per annum (TPA) and alumina refining capacity by 210,000 TPA. Aluminium being a power intensive industry the company has also planned to augment its power generating capacity to 796 mega watts (MW) for meeting the increased requirements. The expansion is anticipated to be completed by FY03-FY04.
Although operating profit growth has declined over previous year levels, current year growth has been in tandem with the escalation in turnover. This has been possible due to the company maintaining strict vigil over operating expenses. Energy costs are a key constituent of raw material expenses and with energy prices skyrocketing as oil prices doubled during fiscal 2001, the margins could have suffered. Despite the unfavourable environment the company has maintained its OPM at previous year levels.
Interest costs have been kept under control by refinancing of higher cost foreign exchange debt with lower interest rate borrowings. Also, the company seems to be identifying the benefits of an enterprise resource planning (ERP) package. This could further bring down interest costs by reducing short term borrowings for working capital.
Adjusting for extraordinary items (expenses) in FY00, the post-tax profits of the company increase by a lower rate of 6.8%. This is due to the effective tax rate of the company increasing from 28% to 31%. However, in the current fiscal the effective tax could be expected to reduce as the government has removed the 15% surcharge on corporate profits.
At Rs 825 the company is trading on a multiple of 9.1x FY01 earnings.
Hindalco Industries has reported a healthy growth in the topline on the back of Higher volume and realisation for both Aluminium and Copper segments. However, the bottomline declined marginally primarily on the back a provision of Rs 1.04 billion.
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