News Analysis

Hindalco numbers supported by favourable macros

Satya Sontanam | Updated on August 13, 2018 Published on August 13, 2018

The Hindalco stock was in the red in the early morning session in spite of a good set of numbers from the company. This was due to a sell-off in the broader market.

The first quarter earnings reported by the leading aluminium and copper manufacturer showed that operating profit (including Utkal, the alumina segment) on a standalone basis was Rs 1,951 crore in the first quarter of FY19, a rise of 17 per cent from the same period in FY18. This was due to supporting macros for aluminium business and higher by-product realisations in the copper business that was partially offset by an increase in the cost of inputs, mainly coal and furnace oil.

Net profit, too, doubled to Rs 734 crore in this quarter, compared to Rs 364 crore in Q1 FY18 due to lower interest cost (due to pre-repayment and repayment of loans) and higher operating profit.

Revenue in the quarter stood at Rs 10,670 crore versus Rs 10,414 crore despite a reduction in sales volumes in both the aluminium and copper business due to a planned maintenance shut-down.

It is to be noted that revenue has to be disclosed net of GST in line with the requirement of Ind AS 18, following the applicability of GST with effect from July 1, 2017. Therefore, revenue figures for the quarter are not comparable with the previous periods.

Aluminium supported by macros

The aluminium segment has delivered a good set of numbers with 35 per cent y-o-y growth in operating profit to Rs 1,531 crore.

In spite of flat growth in the sales volume year-on-year (300 kt in Q1 FY19), the segment managed to record revenue of Rs 5,667 crore in the said quarter over Rs 5,014 crore during the same period last year. This was led by supportive macros such as an increase in average LME prices (18 per cent y-o-y) and rupee depreciation (4 per cent y-o-y).

Increased by-product realisations in copper

The copper segment too managed to record higher operating profits despite a reduction in the sales volume, caused by lower production due to a planned maintenance shutdown in one of the smelters.

Operating profit was at Rs 335 crore in Q1 FY19, up by 4 per cent y-o-y due to supporting macros and improved realisation of by-products.

The production of copper rod, which makes at least $200 more per tonne over cathode, was at 61 kt in the first quarter of FY 19, up 56 per cent y-o-y due to a ramp-up of the new CCR-3 facility. This also led to higher margins in the copper segment.

Novelis Inc driven by a favourable product mix

The revenues of Novelis (not included in the quarterly earnings reported by the company) were up by 16 per cent at $3.1 billion in Q1 FY 2019 versus $2.7 billion in Q1 FY 2018. This was driven by higher average aluminium prices, higher shipment and a more favourable product mix. Sales of automotive products, which are considered high-margin, have increased by 3 per cent in the quarter y-o-y.

It has recorded the highest ever operating profit (adjusted) at $332 million (up 15 per cent vs Q1 FY18) and the highest operating profit (adjusted) per tonne of $417 (vs $368 in Q1 FY18).

The stock is valued at about eight times its trailing 12-month earnings, which is way lower than the average 20 times that it traded over the past three years.

Published on August 13, 2018

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.