Hindalco’s Margins Under Pressure For June Quarter 2012

Hindalco, Asia’s largest non-ferrous metal aluminum and copper producing company, has announced its results for the June 2012 quarter. The result has been very disappointing for the company as the net sales remained flat at Rs 6,027 crore while the net profit declined by 34 per cent on a YoY basis to Rs 424 crore. Falling aluminum prices on LME by 24 per cent YoY is one of the major reasons for the muted performance of the company. The other factors which impacted the company’s performance included the surge in input costs such as coal, caustic soda and carbon products which further pared earnings by nearly Rs 200 crore.

Moreover, the company’s operational performance was also impacted due to the planned shutdown of the copper production facility and lower volumes of production due to certain operational disturbances in the aluminum plants. Aluminum production during the quarter remained flat at 335 KT (kilo tonnes) due to the temporary shutdown of the aluminum plant that resulted in lower production. Also, due to plant shutdown, the volume of copper production dipped by 5.5 per cent on a YoY basis to 69 KT.

In terms of segments, of the total revenue of Rs 6,028 crore, 34 per cent came from the aluminum business and the balance 66 per cent from the copper division. The margins of the company remained under pressure due to high power & fuel cost which jumped up by 20 per cent on a YoY basis to Rs 757 crore. In a statement released by the company, it has been mentioned that the metal prices declined by 24 per cent on a YoY basis during the quarter which resulted in lower realisation.

The company, in its quarterly update, stated that the input costs surged and the availability of quality bauxite and coal coupled with volatile commodity prices posed significant challenges. However, the company is confident of sustaining its performance given the wide downstream presence and the emphasis on operational efficiencies and cost control. In conclusion, we believe that the macro economic factors are not conducive for the commodity markets and it may take some time to revive globally. Meanwhile, falling commodity prices and high input cost will remain major challenges for the company in the coming quarter. The coming quarter may therefore display a weak performance.