Hindalco Industries Ltd., the flagship company of the Aditya Birla Group, today announced its unaudited financial results for the quarter ended 30 September 2008.
Net sales and revenues have grown by 14% to Rs. 5,683.2 crores as compared to Rs. 4,966.9 crores for the corresponding period in FY 08. Despite the unrelenting input cost push that squeezed margins, the net profit for the quarter at Rs. 720 crores is up by 12%, vis-à-vis Rs. 642.6 crores in the corresponding period of the previous year.
Of the total revenue of Rs. 5,683.2 crores, the aluminium business contributed Rs. 2,120.5 crores as compared to Rs. 1,792.2 crores in corresponding period in previous year. The profit before interest and tax for aluminium business was at Rs. 715.1 crores as against Rs. 661.9 crores in the corresponding quarter in the previous year driven by production, asset sweating, higher LME and a weaker Rupee. Rising input cost, lower production of downstream products have constrained profit to an extent.
In the copper business, revenues stood at Rs.3,565.3 crores up by 12% vis-à-vis from Rs. 3,178.3 crores in Q2FY08 on back of higher realization, enriched market mix and a weaker rupee. The profit before interest and tax grew to Rs. 138.1 crores from Rs. 126.1 crores in the corresponding quarter last year despite a 44% fall in TcRc, mainly due to better by-product realisation and operational efficiencies.
The steep depreciation of the Indian Rupee against the US Dollar affected the copper business by an estimated Rs. 213.9 crore for the quarter under review, as a result of restatement of net foreign currency exposures as on 30th September 2008. For the corresponding quarter of the previous year, this had an estimated favourable impact of Rs. 38.3 crores. Consequently, the PBIT of copper business is lower than the corresponding quarter of the previous year by Rs.252.2 crores.
Take out of Bridge Loan
The company is pleased to announce the repayment of the USD 3.03 Billion bridge facility taken to fund the acquisition of Novelis Inc on May 16, 2007. The bridge facility is to be repaid by November 12, 2008.
The repayment of the bridge facility was financed partly by way of rights issue of equity shares to the existing shareholders, and as to the balance, by way of term debt and internal accruals.
Rights Issue
The Company has issued 525,802,403 equity shares of Re 1 each on rights basis at a price of Rs. 96 per share as fully paid-up vide Letter of Offer dated 13th September, 2008 against which allotment has been made for 473,398,534 equity shares on 23rd October, 2008. The net proceeds of the issue are being utilized to part finance repayment of bridge loan taken for acquisition of Novelis during last year.
Other Sources
The balance of the bridge loan will be repaid by sourcing debt financing and liquidation of treasury.
Operational Review
Aluminium
With the expansion at Muri and Hirakud, Alumina production has risen up by 34% at Muri and Metal production by 39% at Hirakud. The overall metal production was up by 11%.
Lower production of rolled products is mainly due to stoppage of cold rolling mill at Mouda, which is now operational. The extrusion production at Alupuram has been impacted by 25
% power cut by the state electricity board. Foil production is lower on account of changes in product mix.
Expansion projects
Muri The expansion of the Muri alumina refinery from 110,000 tpa to 450,000 tpa is mechanically complete. Production is being ramped up in a phased manner. The entire steam and power requirement is being met by the new captive power plant. The production from the expanded facility is slated to reach its full capacity by the end of the year.
Hirakud Phase II of the expansion of the smelting capacity from 100,000 tpa to 143,000 tpa was completed on time. Further work on expansion to 151 KTA is in progress and is expected to be over by August 2009. The power generation capacity has been raised from 267.5 mw to 367.5 mw. All the units have been commissioned.
Belgaum The allotment of the lease of bauxite mines for expanding the alumina refinery capacity at Belgaum, Karnataka from 350 ktpa to 650 ktpa is still awaited.
Aditya Aluminium Project Aditya Aluminium, the integrated aluminium project, encompassing 1 to 1.5 million tpa alumina refinery, 260,000 to 359,000 tpa aluminium smelter and 750 to 900 mw captive power plant is on track. A major portion of the total land required for the project has been acquired. Environmental clearances have been obtained for the smelter, the captive power plant (CPP) and the alumina refinery. The water drawal agreement has also been executed. The power for construction is already in place. The construction of transmission lines and upgradation of substations to draw power are in progress. The first metal from the smelter is scheduled to be produced by October 2011. The refinery is due to be mechanically completed by January 2013. The technology contracts for the smelter and alumina have been executed with Aluminium Pechiney and Alcan respectively. The basic engineering activities for the smelter and CPP have commenced. The enquiries for long delivery equipments and packages have been floated; these are to be finalized before the end of this fiscal year.
Mahan project The Mahan aluminium project with a smelter capacity of 359 ktpa and CPP of 900 mw is on track. The land acquisition for the project is underway. The company has been allotted a coal block in a JV with the Essar group for the coal requirement of the CPP. Preliminary environmental clearances have been obtained. The power connectivity for commencing construction has been approved. The water resource department has allocated the necessary water source. The production of coal is expected to start by October 2009. The technology contract for the smelter has already been executed with Aluminium Pechiney. The basic engineering activities for the smelter and CPP are in progress and first metal from the smelter is expected by July 2011. The enquiries for long delivery equipments and packages have been floated, and will be finalized before the end of this fiscal year.
Jharkhand project The proposed smelter capacity of the Jharkhand aluminium project is 359 ktpa and a CPP of 900 mw. The plant location is being shifted from Latehar to Sonahatu block which is 20 kilometers from Muri and 55 kilometers from Ranchi. The company has submitted an application for the government land. The government of Jharkhand has given the water allocation clearance for 55 mcm of water from Subernrekha basin. Tubed coal mine has been allotted jointly with Tata Power. The technology contract for the smelter has already been executed with Aluminium Pechiney. The tentative date for the first metal from the smelter is June 2012.
Utkal The construction of Utkal alumina refinery with a proposed capacity of 1.5 mtpa is currently underway. The company has acquired the land for the plant and other facilities. The basic engineering packages have already been received from Alcan (technology supplier). Major packages have been ordered. The detailed engineering for the main plant area is nearing completion. The civil works for alumina refinery and captive power plant is in progress. Bauxite mining activities are expected to start by end 2009. The mechanical completion of the plant is slated for January 2011 and the first alumina is expected to be produced around July 2011.
Hindalco Almex Aerospace Limited This joint venture company for the manufacture of high-strength aluminium alloys for applications in the aerospace, sporting goods and surface transport industries is at an advanced stage of implementation. All key equipments have arrived at the site and are under commissioning. The project will be completed shortly.
Industry outlook
Aluminium
Global aluminium demand growth is now expected at 6% as against the earlier estimate of 8%. The sharp slow down in Global demand will result in higher inventory in 2009-2010 with the US recession and its extension to Europe having a major impact. China is also showing signs of moderation after a sharp run up in demand.
At the same time, weakness in supply is a comforting factor as capacities are shutting down in the western world, Africa and recently in China due to power related issues.
Falling aluminium prices are leading to cuts in production/capacities as increasingly capacities become unviable. China is expected to be net importer in 2009.
Copper
Low exchange stocks and strong fund interest in base metals maintained copper prices at higher level during this period. However, tighter credit policy and slower investment growth are likely to slow down copper demand growth globally. While recent disruptions at major Mines could affect the copper supply side, this is not likely to change the overall stocks significantly due to a fall in consumption in US and Europe. Global copper consumption is likely to increase by 3.2 % this year.
Smelter production worldwide is adversely affected due to lower copper in concentrates and use of more complex materials. Smelters in Asia other than China are well covered in the short term which has improved spot TCRC from last quarter. Negotiations for 2009 between the Mines and Smelters are likely to be prolonged as while Smelters would ask for substantial improvement in TCRC over last year due to sharp decline in the sulphuric acid prices, Mines would resist due to the expected decline in copper prices.
Prices have come under severe pressure and would continue to be depressed in the current unstable macro economic environment
Company outlook
The business will be impacted by the overall slow down in the global economy. The short-term outlook seems negative, however long term market fundamentals remain strong.
The adverse macro-economic factors will continue to impact the business. The company is closely monitoring changes in the global economic and business landscape and taking proactive measures to tide over and emerge stronger from the global crisis. The ramp up of brownfield expansions, enhanced asset productivity and containment of input cost along with effective working capital management to maximise free cash flow will be the major growth drivers
