Hindalco Shareholders Meeting on March 7 for Warrant Issuance approval

Hindalco Industries, a part of the Aditya Birla Group, will be raising Rs 2,000 crore through the issue of preferential warrants through promoters and the promoters’ group. The company will issue up to 15 crore warrants at the face value of Rs 1 each. It has not, however, announced the issue price of the warrant but it has been stated that the price will be decided as per the formula laid out by SEBI. An extraordinary general meeting to get shareholders’ approval for the matter is scheduled on March 7.

As per the management, the raised funds will be used for various expansion plans. The company has not been able to achieve the financial closure of its Aditya Smelter project and the funds raised through warrants will now be used partially for this project while the rest will stay in the books of the company. As per the management it is more of an exercise to maintain a healthy debt-equity ratio.

The company is the process of various expansions projects such as the setting up of a smelter plant at Mahan, Utkal refinery and Aditya Smelter for which the company is under the process of financial closure. However, as per the third quarter results, if we look at the debt to equity ratio of the company which is at 0.5:1, this looks quite comfortable. About this the management has stated that due to higher fund-raising in the coming months their debt will go up drastically, which is why the warrants have been issued to balance the debt equity of the company. And these funds will be used as and when the need arises.

However, we believe that the liquidity of the company was at comfortable levels and the company could have raised it later when it was required. Therefore the question that still remains unanswered is about the actual requirement by way of funds.

Also, as per the latest media reports, institutional investors’ advisory services have asked the shareholders to vote against the warrant issue. This is something investors should watch out for in the coming days.

Moving on, the company’s financial performance for the December quarter 2011 was subdued. The net sales of the company during the quarter declined by 11 per cent on a YoY basis to Rs 6,646 crore while the net profit of the company declined by 2 per cent to Rs 451 crore.

Commenting on this, the company has stated that the December quarter performance witnessed a decline in profitability due to volatility in the commodity prices on London Metal exchange (LME) and the higher input cost of Aluminum. As regards the outlook the management has said that volatility on LME will continue. The macro-economic environment will remain adverse while the cost pressures with respect to coal and crude derivatives will continue. Business conversion will become critical if macro risks affect metal.