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Hindalco: A peep into past II

Jul 10, 2008

In last article, we have discussed the performance of Hindalco during 1999 to 2002. Now let us see the performance of Hindalco between the period 2003 and 2007. This was the period when Hindalco merged Indo Gulf's copper division with itself and the business model of company underwent a change. Hindalco, who was primarily an aluminium producer now also had copper products in its portfolio. Let us see the performance of profit and loss account of the company between the period 2003 and 2007.

Topline: As the business model of the company underwent a change in 2003, there were mainly two segments, aluminium and copper. The topline of company grew at a CAGR of 38%. These two segments contributed more than 80% to the revenues during the period under consideration.

Aluminium segment contributed more than 38% to the revenues of the company during the period under consideration. The revenues grew at a CAGR of 32%. Primary aluminum sales grew at a CAGR of 14%. It was led by volumes growth at 5% CAGR and realisation growth at 9% CAGR. LME prices of aluminium, a benchmark for aluminium prices globally grew at a CAGR of 18% during the same period. Sales from aluminium value-added products grew at a CAGR of 31%. lts volumes grew at a CAGR of 21% and realizations grew at a CAGR of 8% during the period under consideration.

The copper segment contributed more than 35% to the total revenues of the company. The revenues grew at a CAGR of 52. Realisations grew at a CAGR of 37%, mainly due to increase of 65% in FY07 on YoY basis. LME prices of copper grew at a CAGR of 44% from US$ 1,586 in 2003 to US$ 6,862 in 2007. The period under consideration was one of the best periods in a long time for metal companies as there was a global commodities boom. This resulted in strong realisations and volume growth and hence, the strong revenue growth for the company.

Operating Front: The operating profits of the company showed a rising trend. It grew at a CAGR of 35% from Rs 12 bn in 2003 to Rs 40 bn in 2007. However, the operating profit margins of company fell significantly from an average of 44% between period FY99 and FY02, when the company relied heavily on aluminium products to an average of 23% in the period under consideration. This can be owed to the higher operating costs of copper segment and lower margins from it. Operating costs grew at a CAGR of 40% during the period under consideration. This was mainly due to rise in raw material costs, which grew at a CAGR of 46% and power generation costs that grew at a CAGR of 29%.

Bottomline: The bottomline of the company grew at a CAGR of 45%. The net profit margins increased from 12% in FY03 to 14% in FY07. Both depreciation charges and interest expenses grew at a lower rate than the operating profits and hence, the bottomline growth came in higher than the growth in operating profits. Tax outgo too came in at a lower rate, thus further adding to the bottomline growth.

To conclude, although the margins of the company declined after the merger of copper segment with it, the company was able to achieve a greater topline and bottomline growth because of the same.

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