Thursday, January 31, 2008

Hindalco Industries Limited Q3 FY 2007-2008 Results

Hindalco Industries Ltd., the flagship company of the Aditya Birla Group, today announced its unaudited financial results for the quarter ended December 31, 2007.
Net sales and operating revenues stood at Rs.4,531.7 crores as compared to Rs.4,656.2 crores in the corresponding period in FY 07. The net profit for the quarter is Rs.542.7 crores vis-à-vis Rs. 643.9 crores in the corresponding period of previous year.
These results need to be viewed in the context of macro-economic parameters as these adversely impacted the quarter under review. Domestic Aluminium ingot prices are down by around 20% due to the rupee appreciation. A 10% lower aluminium LME, 41% lower Tc/Rc in copper and soaring international crude prices have exerted considerable pressure on margins. This was mitigated to some extent by sweating capacities, improving realization through an enriched product/market mix, optimizing efficiency levels and producing highest ever aluminium metal in a quarter.

Of the total revenues of Rs. 4,531.7crores, the aluminium business contributed Rs. 1,729 crores. Aluminum metal sales volume rose by 12% along with higher proportion of value added products.
The profit before interest and tax for aluminium business was at Rs.578.9 crores as against Rs. 755.5 crores in the corresponding quarter in the earlier year, as stated earlier, mainly due to the rising rupee and fall in global alumina realization.
In the copper business, revenues stood at Rs.2806.2 crores driven by higher sales volumes and an enriched product mix. The profit before interest and tax was Rs. 94 crores against Rs. 159.5 crores in the corresponding quarter last year.
As mentioned earlier, a 41% lower TcRc and lower duty differential on imports constrained the copper business..The effect of these were partially offset by improvement in the market mix with higher sales in domestic market, lower grid power usage on improved captive power availability, energy consumption and better realization from by-product sale. Moreover, steep appreciation of Indian Rupee against US Dollar adversely impacted segment results of Copper by an estimated Rs.54 crores for the quarter under review as a result of restatement of net foreign currency exposures as on December 31, 2007. For the corresponding quarter of the previous year, this had an estimated favourable impact of Rs.86 crores on such results. Consequently, the Copper segment results for the quarter under review are lower than the corresponding quarter of the previous year by an estimated non-cash impact of Rs.140 crores on this account.

Operational review
All the aluminium plants operated at consistently high capacity utilisation. Brownfield expansions have resulted in increasing metal production by 9%. The downstream assets purchased in the last two years are fully utilized, in addition to consistent production from other plants. Production of value added products (VAP) viz. Rolled products and Extrusions production extended by 6 per cent and 10 per cent respectively. Alumina production was marginally less than last year predominantly due to the hooking of existing alumina refinery with expanded facility at Muri.

Copper cathodes and CC rods production increased by 7% and 38 % respectively on YoY basis on the back of the ramp up of the copper-III smelter and consistent production from smelter-I. The operations at copper smelter -II continue to be suspended.

Expansion projects
The expansion of the Muri Alumina refinery from 110,000 tpa to 450,000 tpa is under commissioning 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 expected to be stepped up progressively in Q4FY08.

Phase II of the expansion of the smelting capacity from 100,000 tpa to 143,000 tpa is on track. The scaling up of the power generation capacity from 267.5MW to 367.5MW will go on stream by the fourth quarter of this fiscal.

The allotment of the lease for bauxite mines for expanding the alumina refinery capacity at Belgaum, Karnataka from 350 ktpa to 650 ktpa is awaited.

Aditya Aluminium
Aditya Aluminium, the integrated aluminium project, encompassing 1-1.5 million tpa alumina refinery, 260,000-325,000 tpa aluminium smelter and 750 MW captive power plant is progressing as planned. The major portion of the total land required for the project has been acquired. Environmental clearances have been obtained for Smelter, the Captive Power Plant (CPP) and the refinery. Joint venture Company is formed for the coal block. The water drawal agreement is also finalized. Construction power already in place, the regulatory clearances obtained for transmission lines for operation power. The Smelter is expected to be commissioned by March, 2011 and the refinery by May, 2011.

The Mahan Aluminum project with a smelter capacity of 325 ktpa and CPP of 750 MW is on schedule. 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 provided the necessary facilities as well. The production of coal is likely to start by Oct'09. The Smelter is expected to roll on by September 2012.

For the Latehar project with a smelter capacity of 325 ktpa and CPP of 750 MW, Tubed Coal mine has been allocated jointly with Tata Power. Preliminary Environmental clearances have been obtained. Land acquisition is in progress. Power for construction activity is sanctioned. The expected date of commissioning is September 2013.

Work on Utkal Alumna's 1.5 MTPA Alumina Refinery is underway. The Company has acquired the land for the plant and facilities. Mining activities will start by March 2009. The civil works for Alumina refinery and CPP is in progress. The commissioning of the Plant is expected by March 2010.

Hindalco Almex Aerospace Limited
This project for manufacture of high strength aluminium alloys for applications in the aerospace, sporting goods and surface transport industries is on target. Key equipment has begun to arrive at site for installation.

Industry outlook

Global primary aluminium consumption has witnessed a strong growth of 10 % from April through December 2007. US production levels have seen a high growth but demand from residential construction market and transport markets continues to remain weak. Demand from Western Europe has been relatively stronger due to firm transport and engineering markets. China is the strongest driver of the demand as the metal grew at 34.7%, in this period, with demand from the power, transport and construction markets bolstering growth.

The bullish run on the copper prices has been halted due to global economic and financial woes and the trend is likely to be downward. With many major smelters announcing annual maintenance shutdown during April -June'07, the availability of concentrates would improve, resulting in a higher spot TCRC.

Company outlook
Going forward, higher volumes from asset sweating of existing plants, the brownfield expansions and continued cost focus together with effective working capital management to maximise free cash flow will be the major growth drivers. However a stronger Rupee will continue put pressure on the profit margins.

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