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Hindalco: Other income boost - Views on News from Equitymaster
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Hindalco: Other income boost
Nov 1, 2008

Performance summary
  • Topline of the company grows by 14.6% YoY and 7.2% YoY during 2QFY09 and 1HFY09 respectively, driven by higher aluminium sales.
  • Operating margins declined by 110 bps during the quarter mainly on account of higher fuel costs.
  • Strong growth in other income despite the declining operating profits helps the company post a decent 12% YoY growth in bottomline during the quarter.


(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Net sales 49,597 56,832 14.6% 96,376 103,307 7.2%
Expenditure 40,380 46,898 16.1% 78,316 83,883 7.1%
Operating profit (EBDITA) 9,217 9,934 7.8% 18,060 19,424 7.6%
EBDITA margin (%) 18.6% 17.5%   18.7% 18.8%  
Other income 1,098 1,768 61.0% 2,344 3,914 67.0%
Interest (net) 632 855 35.3% 1,194 1,616 35.4%
Depreciation 1,446 1,592 10.1% 2,874 3,160 9.9%
Profit before tax 8,237 9,255 12.4% 16,336 18,563 13.6%
Extraordinary income/(expense)            
Tax 1,809 2,056 13.6% 3,879 4,396 13.3%
Profit after tax/(loss) 6,428 7,200 12.0% 12,457 14,167 13.7%
Net profit margin (%) 13.0% 12.7%   12.9% 13.7%  
No. of shares (m) 1,111.0 1,227.1   1,111.0 1,227.1  
Diluted earnings per share (Rs)*         24.7  
Price to earnings ratio (x)*         2.5  

What has driven performance in 1QFY09?
    Let us have a look as to how the two main segments of the company viz. Aluminium and Copper performed during the quarter.

  • Aluminium: The segment accounted for 37% of company’s total revenues during the quarter, greater by 1% as compared to 2QFY08. The revenues grew by 18% on a YoY basis, mainly led by higher LME prices and weaker rupee. The profit before interest and taxes also increased by 8% on a YoY basis on account of higher realizations.

  • Copper: The segment accounted for 63% of company’s total revenues during the quarter, decline of 1% as compared to 2QFY08. The revenues increased by 12% on a YoY basis, mainly on account of higher realisation, better product mix and weaker rupee. Furthermore, the profit before interest and taxes increased by 10% on a YoY basis led by better by-product realisations and operational efficiencies. Had it not been for the 44% fall in the TcRc charges as compared to corresponding quarter last year, the performance would have been even more impressive.

    Segmental break-up…
    Aluminium 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
    Revenues 17,922 21,205 18.3% 35,387 40,635 14.8%
    PBIT 6,619 7,151 8.0% 13,044 14,655 12.4%
    PBIT margin 36.9% 33.7%   36.9% 36.1%  
                 
    Copper            
    Revenues 31,783 35,653 12.2% 61,045 62,719 2.7%
    PBIT 1,261 1,381 9.5% 2,384 2,124 -10.9%
    PBIT margin 4.0% 3.9%   3.9% 3.4%  

    On the operating front, operating profits grew by 7.8% on a YoY basis. The operating margins declined by 110 bps to 17.5% backed by higher input costs. The overall expenditure showed a increase of 16% on a YoY basis, higher than the topline growth.

    The bottomline of the company showed a growth of 12% on a YoY basis, greater than operating profits. This was mainly due to a 61% jump in other income.

What to expect?
At the current price of Rs 61, the stock is trading at a multiple of 0.4 times our estimated FY11 book value per share. The company has revised its growth estimates for the aluminium business. We will be revisiting our growth projections for the same and soon come out with an updated research report.

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