News Analysis

Hindalco numbers supported by favourable macros

Satya Sontanam | Updated on August 13, 2018 Published on August 13, 2018

The Hindalco stock was in the red in the early morning session in spite of a good set of numbers from the company. This was due to a sell-off in the broader market.

The first quarter earnings reported by the leading aluminium and copper manufacturer showed that operating profit (including Utkal, the alumina segment) on a standalone basis was Rs 1,951 crore in the first quarter of FY19, a rise of 17 per cent from the same period in FY18. This was due to supporting macros for aluminium business and higher by-product realisations in the copper business that was partially offset by an increase in the cost of inputs, mainly coal and furnace oil.

Net profit, too, doubled to Rs 734 crore in this quarter, compared to Rs 364 crore in Q1 FY18 due to lower interest cost (due to pre-repayment and repayment of loans) and higher operating profit.

Revenue in the quarter stood at Rs 10,670 crore versus Rs 10,414 crore despite a reduction in sales volumes in both the aluminium and copper business due to a planned maintenance shut-down.

It is to be noted that revenue has to be disclosed net of GST in line with the requirement of Ind AS 18, following the applicability of GST with effect from July 1, 2017. Therefore, revenue figures for the quarter are not comparable with the previous periods.

Aluminium supported by macros

The aluminium segment has delivered a good set of numbers with 35 per cent y-o-y growth in operating profit to Rs 1,531 crore.

In spite of flat growth in the sales volume year-on-year (300 kt in Q1 FY19), the segment managed to record revenue of Rs 5,667 crore in the said quarter over Rs 5,014 crore during the same period last year. This was led by supportive macros such as an increase in average LME prices (18 per cent y-o-y) and rupee depreciation (4 per cent y-o-y).

Increased by-product realisations in copper

The copper segment too managed to record higher operating profits despite a reduction in the sales volume, caused by lower production due to a planned maintenance shutdown in one of the smelters.

Operating profit was at Rs 335 crore in Q1 FY19, up by 4 per cent y-o-y due to supporting macros and improved realisation of by-products.

The production of copper rod, which makes at least $200 more per tonne over cathode, was at 61 kt in the first quarter of FY 19, up 56 per cent y-o-y due to a ramp-up of the new CCR-3 facility. This also led to higher margins in the copper segment.

Novelis Inc driven by a favourable product mix

The revenues of Novelis (not included in the quarterly earnings reported by the company) were up by 16 per cent at $3.1 billion in Q1 FY 2019 versus $2.7 billion in Q1 FY 2018. This was driven by higher average aluminium prices, higher shipment and a more favourable product mix. Sales of automotive products, which are considered high-margin, have increased by 3 per cent in the quarter y-o-y.

It has recorded the highest ever operating profit (adjusted) at $332 million (up 15 per cent vs Q1 FY18) and the highest operating profit (adjusted) per tonne of $417 (vs $368 in Q1 FY18).

The stock is valued at about eight times its trailing 12-month earnings, which is way lower than the average 20 times that it traded over the past three years.

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