Hindalco: Expansion acts buffer - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Hindalco: Expansion acts buffer

Oct 23, 2003

Hindalco, the A.V.Birla group company, announced its 2QFY03 numbers today. The company is the largest producer of primary aluminium in the country and is also one of the lowest cost producers of the base metal in the world. For the quarter ended September 2003, the company has reported an 18% bottomline growth on the back of 22% topline growth. It must be noted here that the figures for the quarter ended September 2002 and for the half-year (1HFY03) have been adjusted accordingly to include Indo Gulf’s acquired Copper division performance.

(Rs m)2QFY032QFY04Change1HFY031HFY04Change
Net Sales 12,059 14,748 22.3% 24,038 26,303 9.4%
Other Income 594 879 48.0% 1,035 1,678 62.1%
Expenditure 8,886 11,078 24.7% 17,392 19,401 11.6%
Operating Profit (EBDIT) 3,173 3,670 15.7% 6,646 6,902 3.9%
Operating Profit Margin (%)26.3%24.9% 27.6%26.2% 
Interest 306 422 37.9% 657 873 32.9%
Depreciation 623 778 24.9% 1,256 1,495 19.0%
Profit before Tax2,8383,34918.0%5,7686,2127.7%
Tax 905 1,072 18.5% 1,867 2,005 7.4%
Profit after Tax/(Loss) 1,933 2,277 17.8% 3,901 4,207 7.8%
Net profit margin (%)16.0%15.4% 16.2%16.0% 
No. of Shares 92.5 92.5   92.5 92.5  
Diluted Earnings per share* 98.5  91.0 
P/E Ratio     11.2  

The company’s topline growth is primarily a factor of increased volume sales of aluminium (up 22%) as the realisations improved very marginally (0.5%). Moreover, the growth in volume sales came mainly from the domestic market wherein sales increased by over 25% compared to a mere 4% export growth. The contribution from the value added products like foils, extrusions and rolled products was also in the negative. It must be noted that during 2QFY04, while the average aluminium prices on the LME were higher by 10% over that of the corresponding quarter last year, the appreciation in the rupee and the domestic competition seems to have put pressure on the pricing ability of the company. The scenario for copper was relatively favourable. While the company’s volume sales increased by 23% (over 50% growth in exports), the net realisations also showed a 9% rise on the back of an improved average LME copper realisation of 15% YoY.

The other income for the quarter ended September 2003 was also higher by 48% and the company has attributed this to higher treasury investments in mutual funds, long-term gains and dividends, forex rate gain on working capital loans, profit of Rs 205 m on the sale Indo Gulf shares and interest of Rs 48 m on account of Income Tax refunds.

The operating margins of the company took a hit of 140 basis points on account of higher cost of some inputs like caustic soda, CP Coke and bauxite. This is also evident from the fact that the raw material costs as a percentage of net sales increased from 47% in 2QFY03 to 54% in 2QFY04. This increase in costs was the primary cause of increase in expenditure as a percentage of net sales as all other costs like staff costs and manufacturing expenses have actually reduced. The interest for 2QFY04 was higher owing to lower interest capitalisation to the tune of Rs 121 m. The higher depreciation charges (up 25%) could be attributed to the capacity expansion of the company.

At Rs 1,020, the Hindalco stock trades at annualised P/E multiple of over 11x 1HFY04 earnings. The company has been on an expansion spree in all its business segments i.e. alumina, aluminium and copper. It has also been expanding by acquiring other capacities, like in the case of Copper, wherein after acquiring the Nifty Mines, the company has gone ahead and acquired Mount Gordon Copper Mine through investment in Birla Mineral Resources Pvt. Ltd., its wholly owned subsidiary.

Thus going forward, as the global economies, especially the US, gets back onto the recovery path, the company is in a comfortable position to capitalise on any increase in consumption. Moreover, with Asian economies, especially China, displaying strong aluminium and copper consumption trends, the prices of the metals are unlikely to weaken much going forward. While the valuation is on the higher side of the spectrum at the current juncture, the stock seems fairly priced. However, at the same time, it must be remembered that the effect of the capacity expansions and acquisitions will be reflected in the following quarters.

Equitymaster requests your view! Post a comment on "Hindalco: Expansion acts buffer". Click here!


More Views on News

HINDALCO 2020-21 Annual Report Analysis (Annual Result Update)

Oct 27, 2021 | Updated on Oct 27, 2021

Here's an analysis of the annual report of HINDALCO for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of HINDALCO. Also includes updates on the valuation of HINDALCO.

Supercycle or Not these 5 Metal Stocks Delivered Superb Gains (Views On News)

Sep 8, 2021

These stocks have rallied than 100% in the last year. Is there more upside to come?

HINDALCO Announces Quarterly Results (1QFY22); Net Profit Up 668.5% (Quarterly Result Update)

Aug 9, 2021 | Updated on Aug 9, 2021

For the quarter ended June 2021, HINDALCO has posted a net profit of Rs 33 bn (up 668.5% YoY). Sales on the other hand came in at Rs 414 bn (up 63.6% YoY). Read on for a complete analysis of HINDALCO's quarterly results.

Hindalco Q4 Profit Surges 189% as Demand Surpasses Pre-Covid Level (Views On News)

May 24, 2021

A look into the country's leading aluminium and copper manufacturer's stellar Q4 performance.

HINDALCO Announces Quarterly Results (3QFY21); Net Profit Up 76.2% (Quarterly Result Update)

Feb 11, 2021 | Updated on Feb 11, 2021

For the quarter ended December 2020, HINDALCO has posted a net profit of Rs 3 bn (up 76.2% YoY). Sales on the other hand came in at Rs 114 bn (up 11.0% YoY). Read on for a complete analysis of HINDALCO's quarterly results.

More Views on News

Most Popular

India's Best Semiconductor Stocks Views On News (Views On News)

Jan 7, 2022

Modern wars are fought with semiconductors. India's best semiconductor stocks have big tailwinds from defence and manufacturing.

10 Indian Companies with the Fastest Growth in Dividend Payouts... (Views On News)

Jan 10, 2022

These companies have been consistently paying higher dividends for several years.

Tata Steel vs SAIL: Which Stock is Better? (Views On News)

Jan 13, 2022

With government initiatives set to boost the steel sector, find out who has a better chance of coming out on top.

Looking for Consistent Compounding Stocks? Here's a Watchlist for You (Views On News)

Jan 6, 2022

These companies have generated mind boggling returns for investors over the years.

Watch Out for these 4 Indian Companies Betting Big on EV Supply Chain (Views On News)

Jan 11, 2022

The upside in supply chain players could be huge but a delay in the transition to EVs, or any policy related hiccups could end the momentum.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Jan 19, 2022 10:48 AM


  • Track your investment in HINDALCO with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks