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Hindalco: Aluminium puts a dampener - Views on News from Equitymaster
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Hindalco: Aluminium puts a dampener
Jul 31, 2009

Performance summary
  • The standalone topline declines by 16.1% YoY mainly on account of subdued performance of aluminium business due to lower LME prices.
  • Operating profits decline by 20.2% YoY, leading to a fall in operating margins by 1% during the quarter.
  • Bottomline suffers a decline of 31% YoY mainly on account of drop in operating profits as well as subdued other income.


Standalone financial snapshot
(Rs m) 1QFY09 1QFY10 Change
Net sales 46,475 38,995 -16.1%
Expenditure 36,984 31,417 -15.1%
Operating profit (EBDITA) 9,491 7,578 -20.2%
EBDITA margin (%) 20.4% 19.4%  
Other income 2,147 753 -64.9%
Interest (net) 761 682 -10.4%
Depreciation 1,568 1,653 5.4%
Profit before tax 9,308 5,996 -35.6%
Extraordinary income/(expense) - -  
Tax 2,340 1,190 -49.1%
Profit after tax/(loss) 6,968 4,806 -31.0%
Net profit margin (%) 15.0% 12.3%  
No. of shares (m) 1,226.5 1,700.5  
Diluted earnings per share (Rs)*   11.8  
Price to earnings ratio (x)*   8.6  
(* on trailing twelve months earnings)

What has driven performance in 1QFY10?
    Let us have a look as to how the two main segments of the company viz. Aluminium and Copper performed during the quarter:
  • Aluminium: On a standalone basis, the segment accounted for 36% of the company’s total revenues during 1QFY10 as compared to 42% in 1QFY09. Segmental revenues declined by 26.9% YoY during the quarter. This was mainly on account of lower realisations that can be attributed to a 50% fall in LME prices over 1QFY09 levels. However, weaker rupee, higher volumes and improved product and geographic mix impacted positively. PBIT of the segment was lower by 39.3% YoY, with margins falling by 6.6% as increase in input costs hurt the margins of the segment.

  • Copper: The copper segment’s revenues declined by 8.4% YoY, mainly on account of lower LME prices. However, the segment registered increase in its proportion to the company’s total revenues from 58% in 1QFY09 to 64% in 1QFY10. PBIT of the segment grew by around 110.3% YoY, with margins improving by 3.6% on the back of better product realization and improvement in operational efficiency during the quarter. This was despite a 35% fall in TcRc as compared to annual TcRC for 2009.

  • As far as the operating performance is concerned, lower than proportionate decline in the operating expenses as compared to topline resulted in EBITDA margin decline of 1% to 19.4% during the quarter. It may be noted that the figures pertaining to raw material costs and other expenditures are not comparable as the company adopted AS 30 principle for all derivatives during the quarter. This resulted in accounting for the raw material prices at a loss of Rs 1.8 bn while the other expenditure registered a gain of Rs 32 bn.
    Cost break-up…
    (Rs m) 1QFY08 1QFY10 Change
    Raw materials 26,677 25,022 -6.2%
    % sales 57.4% 64.2%  
    Staff cost 1,861 2,070 11.2%
    % sales 4.0% 5.3%  
    Power and fuel 4,765 4,210 -11.7%
    % sales 10.3% 10.8%  
    Other expenses 3,681 115 -96.9%
    % sales 7.9% 0.3%  

  • The bottomline declined by 31% YoY mainly on account of drop in operating profits as well as subdued other income. Moreover, the increase in depreciation charges impacted the bottomline further. However, the lower tax out go due to the ab had a favorable impact on the bottomline.

What to expect?
At current price of Rs 102, the stock of Hindalco is trading at 8.6x its trailing twelve month’s earnings. We shall soon update our view on the company.

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