31 July 2009

Hindalco announces Q1 FY 2009-2010 results
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Hindalco Industries Ltd. announced its unaudited financial results for the quarter ended 30 June 2009.

Net sales and operating revenues at Rs. 3,899 crore is up 3 per cent over Q4FY09. Compared to Q1FY09, net sales and operating revenue was lower by 16 per cent from Rs. 4,648 crore due to subdued commodity prices. The steep reduction in aluminium and copper LME led to a fall in the overall sales revenue and therefore profitability. This was mitigated by the rupee depreciation against the USD and higher sales volume. The profit before other income, depreciation and Interest is higher at Rs. 758 crore compared to Rs. 314.2 crore in Q4FY09, but is 20 per cent lower than Q1FY09. The company’s performance is commendable relative to peers in aluminium and copper industry segments.

Net profit at Rs. 481 crore is higher by Rs. 212 crore over Q4FY09 and is lower than Q1FY09 by 31 per cent.

Of the total revenues of Rs. 3899 crore, aluminium business contributed Rs. 1421 crore compared to Rs. 1561crore in Q4FY09 and Rs. 1943 crore in Q1FY09.

The unprecedented 50 per cent fall in LME over Q1FY09 levels dented the top line and the bottom-line. This was partially offset from gains from weaker rupee, higher volumes and improved product / geographic mix. These macro economic factors led to 39 per cent drop in the profit before interest and tax for aluminium business from Rs. 750 crore in Q1FY09.

The PBIT for aluminium segment was higher at Rs. 455 crore compared Rs. 162 crore in Q4FY09 mainly on back of improved mix and better macro economic conditions.

In the copper business, revenues increased by 12 per cent from Rs. 2213 crore in Q4FY09 to Rs. 2480 crore in Q1FY10 mainly on account of higher realisation and better product and geographic mix, but were lower than Q1FY09 sales of Rs. 2706 crore.

The profit before interest and tax was higher at Rs. 156 crore from Rs. 51 crore in Q4FY09 and Rs. 74 crore in Q1FY09.

AS-30 implementation
Arising from the announcement of the Institute of Chartered Accountants of India dated 29 March, 2008 on Accounting for Derivatives, the company has decided for early adoption of Accounting Standard (AS) 30 on Financial Instruments: Recognition and Measurement, in so far as it relates to derivative accounting, from 1 April 2009. Accordingly net loss arising on fair valuation of outstanding derivatives as on 1 April, 2009 has been adjusted against general reserve following transitional provisions. Accounting for all derivatives during this quarter have been done as prescribed under the AS and accordingly, net gain / (loss) Rs. 9 crore, Rs. (184) crore and Rs. 318 crore have been included under net sales, consumption of raw materials and other expenditure, respectively with consequential impact on profit before tax for the quarter ended 30 June, 2009. The figures of the current quarter in respect of above items are, therefore, not comparable with those of the corresponding quarter of the previous year.

Strategic initiatives
Financing
The company has reached an agreement and received lenders consent on revised terms including covenant relaxations relating to the USD 982 million bank loan. The new terms allow the company significant flexibility to plan its future business and pursue its capital expenditure aspirations going forward. Under the new agreement reached banks have agreed to waive requirement to test covenants on consolidated financials.

Qualified Institution Placement /GDR issue
The Board of Directors of the company at its meeting held on 30 June 2009, inter alia, has approved Qualified Institution Placement to eligible investors up to amount not exceeding US$ 500 Million equivalent to Rs. 2400 crore pursuant to various statutory approvals.

In view of the volatility in domestic market and developments in international markets the Board has decided that the company could in addition to offering of shares under the QIP route also has option to issue share under GDR or any other instrument or any combination thereof but in any case, the total amount to be raised will be restricted to USD 500 million.

Wheel business
The company has decided to close its wheel plant located at Silvassa having a total capacity of 3 lakh wheels per annum. This, being an insignificant part of our operations, will not have any impact on the operations and financials of the company. Necessary steps are being taken to dispose of the assets of the plant.

Operational review
Aluminium
The expansion at Muri and Hirakud has resulted in alumina production going up by 60 per cent at Muri and metal production by 31 per cent at Hirakud. The overall metal production is up 9 per cent.

The production of rolled / foil products are lower due to change in product mix towards higher margin products which requires higher rolling hours and lower tonnage.

The extrusion production at Alupuram has been impacted by power cut by the state electricity board. The extrusion production is higher than Q4FY09.

In comparison to Q4FY09, production has been higher than Q1FY10, except for alumina production. Alumina production in comparison to Q4FY09 is lower on account of planned shutdown at Renukoot alumina plant.

Copper
In operational terms, this quarter has been amongst the best ever first quarter. The copper cathodes production is up by 32 per cent and the value added product (CC rods) is also up by 17 per cent. Q1FY09 production was lower due to the planned shutdown of smelter-1. The variance between CC rod production between Q4FY09 and Q1FY10 is mainly on account of lower quantum of outsourced production.

Brownfield expansion projects

Hirakud
The smelter expansion from 143 ktpa to 155 ktpa was completed on time. Work on the smelter expansion from 155 ktpa to 206.6 ktpa using advanced pot technology of 235 KA along with 100 MW power plant has already started and it will be commissioned in FY 12.

Belgaum
The specials alumina production from Belgaum will be ramped up to 316 ktpa from 138 ktpa. A 18 MW Cogen power plant and a Railway siding facility will also be taken up as a part of the project to reduce cost of production substantially.

Greenfield projects

Utkal Alumina Project
Construction of 1.5 Mio tpa alumina refinery at Rayagada, Orrisa is in full swing. Around 73 per cent of the project cost has already been committed. Production of alumina is expected to start around July 2011.

Mahan Aluminium Project
Site Grading work at Bargwan, MP consisting of a smelter capacity of 3.59 lakhs tpa and a captive 900 MW power plant has already started. The land acquisition for the project will be fully completed in Q2 FY 10. Major orders have been placed for both the smelter and the power plant. Around 50 per cent of the total project cost has been committed. The first metal from the smelter would roll out by July 2011.

Aditya Aluminium Project
It is an integrated aluminium project coming up in Orissa, with a 1.5 million tpa alumina refinery, 359,000 tpa aluminium smelter, and 900 MW captive power plant. Major orders have been laced for both the smelter and the power plant. Around 47 per cent of the total project cost for Smelter & Power Plant has been committed. The technology contracts for the smelter and alumina have been executed with Aluminium Pechiney and Alcan respectively. The first metal from the smelter is slated for October 2011. The refinery should be mechanically completed by June 2013 as scheduled.

Jharkhand Aluminium Project
It is an aluminum smelter coming up in Sonahatu, Jharkhand, with a capacity of 359,000 tpa and 900 MW captive power plant. The land acquisition process has already started. The government of Jharkhand has given the water allocation clearance for 55 mcm of water from the Subarnarekha basin. The Tubed coal mine has been allotted jointly with Tata Power. The first metal from the smelter is expected by June 2013.

Industry outlook
Aluminium
Following a 21.3 per cent de-growth in the previous quarter, the de-growth reduced to 17.7 per cent this quarter, with June alone lower by 13.8 per cent. This may suggest that the slowdown is lifting off the trough.

• LME stocks reached 4.3 million tons but June 2009 witnessed only 4 per cent increase vis-à-vis May 2009, lowest since Aug 2008
  
• The average LME prices of Q1 FY10 are higher by 9 per cent vis-à-vis Q4 FY09. This is the highest growth since Q1 FY09.
  
• Demands in developed markets have also shown signs of growth on quarter to quarter basis.
  
• With strong growth in the Electrical segment and positive growth in Transportation, the Indian market grew by a healthy 16 per cent this quarter. This was on a “high-base” quarter, a fact that bodes well for the rest of the financial year.

Imports of copper concentrates in China have substantially gone up as a result of lower availability of scrap. This has put pressure on spot TCRC. Mid year TCRC settlements have been lower than 2009 annual TCRC by 35 per cent.

Higher LME coupled with ease in the scrap availability has put in a temporary dampener in the demand of copper in Q1 of FY 10 whereby the demand has fallen as compared to Q4 of FY 09. However, demand in power and infrastructure continues to be strong. YoY basis the demand in Q1 has shown double digit growth.

Company outlook
The company will continue its leadership position in value added products and speciality alumina business. With aggressive cost containment, enhanced asset productivity and strong fundamentals coupled with enhanced capacity from expansions, the prospects for the company in the long term remains positive, though it may be somewhat bumpy in the immediate future.

With the continued focus on operational efficiency and synergy between businesses, the company intends to grow in current and new markets in terms of geography and product portfolio.

Statements in this “Press Release” describing the Company’s objectives, projections, estimates, expectations or predictions may be “forward looking statements” within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company’s operations include global and Indian demand supply conditions, finished goods prices, feed stock availability and prices, cyclical demand and pricing in the Company’s principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries within which the company conducts business and other factors such as litigation and labour negotiations. The Company assume no responsibility to publicly amend, modify or revise any forward looking statement, on the basis of any subsequent development, information or events, or otherwise.

For more information, contact:
Dr. Pragnya Ram,
Group Executive President,
Corporate Communications,
Aditya Birla Management Corporation Private Limited
Tel: 91-22-6652 5000 / 2499 5000
Fax: 91-22-6652 5741/ 42
Email: pragnya.ram@adityabirla.com