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Hindalco: A year full of challenges - Views on News from Equitymaster

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Hindalco: A year full of challenges
Jun 30, 2009

Performance summary
  • Standalone topline declines by 5% YoY on account fall in LME prices of aluminium and copper.
  • Operating profits declines by 10.7% YoY , causing EBITDA margins to contract by 1% during the fiscal
  • Standalone bottomline declines by 22% YoY led by higher interest charges, depreciation and taxes.
  • Consolidated topline grows by 9.4% YoY while the bottomline declines by 84.9% YoY during the year.
  • Has recommended a dividend of Rs 1.35 per share (dividend yield of 2%).


Standalone financial snaphot
(Rs m) FY08 FY09 Change
Net sales 192,010 182,197 -5.1%
Expenditure 157,999 151,838 -3.9%
Operating profit (EBDITA) 34,011 30,359 -10.7%
EBDITA margin (%) 17.7% 16.7%  
Other income 4,929 6,367 29.2%
Interest (net) 2,806 3,369 20.1%
Depreciation 5,878 6,453 9.8%
Profit before tax 30,256 26,903 -11.1%
Extraordinary income/(expense)      
Tax 1,647 4,601 179.3%
Profit after tax/(loss) 28,609 22,303 -22.0%
Net profit margin (%) 14.9% 12.2%  
No. of shares (m) 1,226.0 1,700.5  
Diluted earnings per share (Rs)* 23.3 13.1  
Price to earnings ratio (x)*   6.6  
* on trailing twelve months earnings

What has driven performance in FY09?

Let us have a look as to how the two main segments of the company viz. Aluminium and Copper performed during the fiscal:

  • Aluminium: On a standalone basis, the segment accounted for 42% of the company’s total revenues during FY09 as compared to 37% in the previous fiscal. Segmental revenues were higher by 6.4% as compared to FY08. Although sales in volume terms were higher, realisations took a hit. Lower realisations could be attributed to the lower LME prices coupled with fall in demand for aluminium. All these factors put together led to lower revenues vis-à-vis FY08. PBIT of the segment was lower by 11% YoY, with margins falling by 5.5% as increase in input costs hurt the margins of the segment.

  • Copper: The copper segment’s revenues declined by 11.9% YoY, mainly on account of lower LME prices. The PBIT was lower by 24.7% YoY led by a fall in TcRC and planned shutdown. The TcRC declined by around 37% YoY during FY09. Also, the steep depreciation of Rupee against the Dollar affected the segment by around Rs 1.6 bn.

  • As far as the overall EBITDA margins of the company are concerned, all the cost heads except for raw material costs increased as a percentage of sales during the year. Thus, the margins declined by 1% to 16.7% in FY09

    cost break up
    (Rs m) FY08 FY09 Change
    Raw materials 119,147 109,470 -8.1%
    % sales 62.1% 60.1%  
    Staff cost 6,212 6,676 7.5%
    % sales 3.2% 3.7%  
    Power and fuel 19,108 22,316 16.8%
    % sales 10.0% 12.2%  
    Other expenditure 13,532 13,377 -1.1%
    % sales 7.0% 7.3%  

  • The standalone bottomline declined by 22% YoY, greater than the decline in operating profits during the fiscal. This was mainly on account of higher interest charges, depreciation and taxes. Had there been no growth in other income, the decline in bottomline would have been even greater.

  • On the consolidated front, the bottomline declined by around 77.9% YoY, despite a 9.4% growth in topline. This was mainly on account of derivative losses booked at Novelis coupled with higher operating costs during the fiscal.

    Consolidated financial snaphot
    (Rs m) FY08 FY09 Change
    Net sales 600,128 656,252 9.4%
    Expenditure 533,778 626,478 17.4%
    Operating profit (EBDITA) 66,351 29,774 -55.1%
    EBDITA margin (%) 11.1% 4.5%  
    Other income 6,560 6,878 4.8%
    Interest (net) 18,491 12,323 -33.4%
    Depreciation 24,883 30,378 22.1%
    Profit before tax 29,537 (6,049)  
    Extraordinary income/(expense)      
    Tax 6,408 (9,538)  
    Profit after tax/(loss) 23,130 3,488 -84.9%
    Net profit margin (%) 3.9% 0.5%  
    Net profit after minority interest and share in associates 21,933 4,853 -77.9%
    No. of shares (m) 1,226.0 1,700.5  
    Diluted earnings per share (Rs)*   2.9  
    Price to earnings ratio (x)*   30.3  
    * on trailing twelve months earnings

What to expect?
At the current price of Rs 86.5, the stock is trading at a multiple of 0.5 times our estimated FY11 book value per share. While the company’s standalone topline growth has come in 2% lower than our estimates, the bottomline growth has been higher by 2% as compared to our estimates for the fiscal. We are in the process of updating the research report of the company and will release a revised target price.

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