Hindalco Industries Ltd. has posted net sales of Rs 4.8 bn (up 14.5% YoY) and a net profit of Rs 1.38 bn (up 10.3% YoY) for the first quarter ended 30th June 1999. While production volumes during the period increased by 6%, the sales volumes jumped 17%.
Hindalco (FY99 Sales Rs 17.6 bn), an Aditya Birla Group Company, is the largest (Installed capacity 242,000 MTPA) producer of aluminum in the country. The company is also amongst the lowest cost aluminum producers in the world.
The aluminium markets the world over, have witnessed a firming in demand, followed by increase in price realisations. Recently, an accident at a large aluminium smelter, which has halted production for atleast a few months, has further improved the demand supply scenario from the point of view of the producers. This is expected to support the increase in price realisations.
Hindalco is one of the lowest cost producers of metal in the world. It is well placed to capitalise on the surge in demand, while benefiting from the higher price realisations. The company's initiatives are apparent from the fact that exports turnover jumped 93% to Rs 650 mn during the quarter. The company has set itself an export target of Rs 2.7 bn (up 64% YoY).
There has been a decline in margins. While EBITDA margins declined to 50.9% (51.2%), the net profit margins declined to 28.8% (29.9%). The fall in margins was primarily due to the higher depreciation and tax.
Hindalco has been able to prune its inventory levels. This will help the company unlock working capital, which could lead to lowering of costs.
As aluminimum is a commodity, it is no longer possible to generate growth in bottomline by trying to hike metal prices. In commodities like aluminium, the sales price is market determined while the company has control only on the costs of production. Therefore, profit growth can be derived from cost cutting and hike in sales volume only. Another alternative could be to produce more value-added products that offer higher margins. Hindalco has increased the quantity of value added products to 55% of total production and this should help the company attain better margins in the future. This will also insulate it from the volatility in metal prices.
Analysts have recommended the stock as a 'BUY' mainly on account of the international and domestic price recovery in aluminum. Moreover, they favor the company's ability to produce aluminum at rates ($941 per ton) that are amongst the lowest in the world.
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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