Hindalco Industries' standalone net profit in fourth quarter came sharply below market expectation as it dropped 48% on year to Rs 248 crore due to higher depreciation and interest cost and as the company wrote off an exceptional expense.
Bloomberg poll had estimated the aluminium and copper major to report a net profit of Rs 350.9 crore on revenue of Rs 7,489 crore.
An exceptional item of Rs 396 crore relates to a liability of Rs 324 crore under the UP Tax on Entry of Goods into Local Areas Act, 2007 (UP Entry Tax) and a liability of Rs 72 crore under the Madhya Pradesh Gramin Avsanrachna Tatha Sarak Vikas Adhiniyam (MPGATSVA). Both these levies, mainly on on coal and bauxite transport, have been contested by the company and appeals against these are pending before the Supreme Court, it said in a statement.
The Aditya Birla Group company's depreciation and interest cost rose 41% and 36% year-on-year respectively in quarter ended March. "We will push ramp-ups faster to earn commensurate EBITDA as depreciation and interest cost continues to rise," managing director D Bhattacharya told reporters.
The company's revenue rose better than expectation to Rs 8,359.85 crore, up 21% on year following better volumes from both aluminium and copper business. Its US arm Novelis has also started showing improvements in operation after prolonged dismal performance. The shipments from this subsidiary improved 8% during fourth quarter and its cash management strengthened. The company returned $250 million as dividend to the parent company. Improved sales at Novelis are also likely to trim huge debt of parent company. As of March 31, Hindalco's net debt stood at Rs 19,000 crore while its debt to equity ratio was 35:65.
Hindalco's operating margins for the quarter improved to 10% from 9% in a year ago quarter. Bhattacharya said, improved volumes and cost efficiency helped in margin expansion.
The base metal producer's consolidated net profit in fiscal FY14 fell to Rs 2,175 crore from Rs 3,027 crore in FY13, while revenues rose Rs 87,695 crore from Rs 80,193 crore. During the year the company saw sharp fall in profitability mainly due to sharp drop in London Metal Exchange (LME) price, however rupee depreciation offered some cushion. Energy cost continued to rise as the production is now ramping up at all three greenfield projects-- Aditya Aluminium, Mahan Aluminium and Utkal Alumina Refinery.
To feed its 360,000 tonne per annum Mahan aluminium smelter which also has a 900 MW captive power plant Hindalco is awaiting a mining-lease agreement with the government of Madhya Pradesh for Mahan Coal block.
Maheshwari explained that in absence of coal from Mahan the company's procurement of coal from open market has increased and its cost continues to burden financials. The coal cost have risen 10% in last fiscal is likely to further increase in current fiscal as Coal India plans to hike prices. Freight costs are also likely to go up.
Giving an outlook on aluminium sector Bhattacharya said that LME price had bottomed out and were now likely to pick up as the global capacities for the metal are likely to face deficit in current fiscal. He was however upbeat about upcoming sports events which are likely to improve aluminium can consumption. "We have invested handsomely in Brasil and we should be able to take the benefits of the low hanging fruits in the form of soccer world cup starting in June and the summer Olympics. All these will mean greater consumption of beverage cans which will mean good business," he added.
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