Hindalco Posts Disappointing Q3FY13 Results

The Aditya Birla Group flagship company Hindalco posted disappointing results for the Q3FY13. The net profit saw a decline of 4% to Rs 433 crore on a yearly basis and its sales growth was an anemic 3% in the same period. Even at EBITDA level, there was a sharp decline of 18% on a yearly basis to Rs 581 crore. 

On a sequential basis, however, there was some improvement in the company’s performance and saw its EBITDA and net profit increasing by 13% and 21% respectively. One has to take the sequential performance with a pinch of salt as the company’s second quarter performance was bleak due to operational setbacks.

The reason for a bad performance of the company was an increase in the raw material costs and change in inventories, which increased by more than 100% on a yearly basis to Rs 304.78 crore for the quarter. This led to such a sharp drop in the EBIDTA. Although the net profit of the company declined by just 4%, what saved the day for the company was an exceptional other income of Rs 144 crore.  This was despite a sharp fall in the EBITDA and interest cost of the company increasing by 113% to Rs 168 crore. If we remove the exceptional other item, the profit will decline by as much as 30%.

Hindalco has two divisions - Aluminium and Copper. It was the aluminum division that has a one third contribution to the total revenue of the company and saw its sales declining by 1% on a yearly basis to Rs 2215 crore.  Nonetheless, the profit saw a sharp decline of 33% in the same period to Rs 206 crore. The decline was primarily because of a fall in the production volume, thanks to the constraints in the availability of bauxite for its plants. 

The Copper segment, which contributes 67% of the total revenue, saw a relatively good performance and witnessed its topline and bottomline increasing by 5% to Rs 4,660 crore and Rs 225 crore respectively. It was a higher production of the Cathode that helped the company to post such numbers.

Going forward, with some of the projects like Mahan Aluminium, Hirakud FRP and Utkal Alumina are in the final stage of implementation, according to the management and will improve the performance of the company.

Nevertheless, the current share price of the company is discounting its annualised 9MFY13 EPS of Rs 8.48 by 13 times. That looks expensive and hence one should stay away from the scrip as of now.