Hindalco Industries: One-Time Provisioning Takes Toll on Profitability

Hindalco Industries has announced the second quarter results of the financial year 2017-2018 (2QFY18). While the topline increased by 14.4% YoY, the bottomline declined by 10.7% YoY. Here is our analysis of the results.

Performance summary:

• Income from operations increased by 14.4% YoY during 2QFY18. This is on the back of aluminium volume and improved realization. The revenue from the aluminum segment grew by 5.7% YoY. Metal production increased by 2% YoY. On the other hand, alumina production declined during the quarter by 2%YoY. Value added products (VAP) declined by 2% YoY on the back of lower market demand. The revenue from the copper segment increased by 10% YoY on the back of better Copper realization despite fall in the copper sales volume which fell by 10% YoY.
• Operating profit increased by 20.2% YoY on the back of higher aluminium volume, supportive macros and higher by-product realization, partly offset by higher input costs and lower copper volume. Both Aluminium and Copper segment contribution remained robust and grew by 19% YoY and 27% YoY respectively. During the quarter, operating margin stood at 13.5%.
• Other income declined by 44.3% YoY during the quarter. Finance cost declined by 18.6% YoY. This is on the back of debt repayment of Rs 79.6 billion till date in FY18. Depreciation increased by 80.2% YoY.
• The bottomline declined by 10.7%YoY primarily on the back of one-time provisioning of Rs 1.06 bn towards mining litigation case.
  
  

  Financial Snapshot (Standalone)

  (Rs m)	2QFY17	2QFY18	Change	1HFY17	1HFY18	Change
  Total Income	90,123	103,082	14.4%	165,970	200,783	21.0%
  Total Expenses	78,559	89,184	13.5%	143,159	175,407	22.5%
  Operating profit (EBITDA)	11,564	13,899	20.2%	22,811	25,376	11.2%
  Operating profit margin (%)	12.8%	13.5%		13.7%	12.6%
  Other income	3,364	1,872	-44.3%	5,626	4,436	-21.2%
  Interest	5,943	4,836	-18.6%	11,938	9,714	-18.6%
  Depreciation	3,516	3,804	8.2%	6,898	7,595	10.1%
  Profit before tax & exceptional items	5,469	7,131	30.4%	9,600	12,503	30.2%
  exceptional items	849	-1055		849	-2099
  Tax	1,929	2,146	11.3%	3,117	3,578	14.8%
  Net Profit before extraordinary Item	4,389	3,930	-10.5%	7,332	6,826	-6.9%
  Extraordinary Items	8	-1		6	-2
  Net Profit	4,397	3,929	-10.7%	7,338	6,824	-7.0%
  Net profit margin (%)	4.9%	3.8%		4.4%	3.4%
  No. of shares (m)					2,244
  Basic diluted earnings per share (Rs) ^					6.7
  P/E ratio (x) *					39.3

  * On trailing 12 month basis