31 October 2009

Hindalco announces Q2 FY 2009-2010 results

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Hindalco Industries Ltd. announced its unaudited financial results for the quarter ended 30 September 2009.

The operational performance at Hindalco has been amongst the best ever with highest production of both aluminium and copper. However, the impact of sharp fall in sales realisation in aluminium business and lower by-product credits in copper business have adversely impacted the performance by around Rs. 900 crore.

Net sales and operating revenue were lower at Rs. 4917 crore for Q2 FY10 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. The benefits of the brownfield expansion cushioned the fall due to lower commodity prices. The decline was also mitigated by the rupee depreciation against the USD and higher sales volume. The other income including treasury income is lower by Rs. 119 crore on account of lower treasury corpus post utilisation for repayment of bridge loan in November 2008.

Consequently the profit before depreciation, Interest and tax was also lower at Rs. 666 crore and net profit was at Rs. 344 crore.

Of the total revenues of Rs. 4,917 crore, aluminium business contributed Rs. 1,650 crore with EBIT of Rs. 259 crore. The 35 per cent fall in LME over Q2 FY09 levels dented the top line and the bottom-line. This was partially offset through gains from a weaker rupee, higher volumes and improved product / geographic mix. Lower sales realisations account for around Rs. 550 crore of the drop in the operating profit. The purchase cost of coal has increased steeply impacting the margin. These macro economic factors led to 64 per cent drop in the profit before interest and tax for aluminium business from Rs. 715 crore in Q2 FY09.

In the copper business, revenues declined by 8 per cent from Rs. 3,565 crore in Q2 FY09 to Rs. 3,269 mainly on account of lower copper LME. Copper being a custom smelting operation with offset hedging program is relatively insulated from the vagaries of volatile commodity prices. However lower by-product credit has dented the EBIT by Rs. 350 crore.

The marked improvement in operational efficiency including energy efficiency led to an EBIT of Rs. 217 crore which is 57 per cent higher over Q2 FY09.

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 from 1 April 2009 have been done as prescribed under the AS. Accordingly, net gain / (loss) Rs (47) crore, Rs 199 crore and Rs (31) crore for the quarter ended 30 September 2009 and Rs (38) crore, Rs 15 crore and Rs 287 crore for the six months ended 30 September 2009 have been included under net sales, consumption of raw materials and other expenditure, respectively, with consequential impact on profit for the quarter and six months ended 30 September, 2009. The figures of the current quarter and six months in respect of above items are, therefore, not comparable with those of the corresponding period of the previous year.

Strategic Initiatives
Financing
The company has decided to raise long term funds not exceeding Rs 2,900 crore through Qualified Institutional Placement / GDR / Other Securities.

Mouda Energy limited
A captive power plant of 20 MW is proposed at the existing FRP plant at Mouda, near Nagpur to reduce the cost of energy used by the company’s plants in Maharashtra. Pre-project activities have started. A wholly-owned subsidiary by the name Mouda Energy Limited has been incorporated on 5 October 2009 for generation of power to be used captively.

Operational review
Aluminium
The expansion at Muri and Hirakud has resulted in alumina production going up by 66 per cent at Muri and metal production by 19 per cent at Hirakud. The overall metal production is up 7per cent.

The production of rolled/ foil products rose by 12 per cent compared to Q2 FY09 and extrusion production is lower based on market requirements.

Copper
The copper cathodes production is up by 16 per cent and the value added product (CC rods) is also up by 9 per cent.

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 213 ktpa is now underway, part of this will be completed by July 2010 and the rest will be commissioned in FY 12.

Project is underway for transfer of all key equipments for Flat rolled products, from Novelis Plant at Rogerstone, UK to Hirakud. This will enable us to produce Can body stock for local and export market. The project is slated for completion in Q2 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, Orissa is in full swing.  Around 75 per cent of the project cost has already been committed. Large contractors are working at site and major equipment like boilers, evaporators, turbines have started arriving at site. Production of alumina is expected to start around July 2011.

Mahan Aluminium Project
It is an aluminium smelter of capacity 359,000 tpa and a captive 900 MW power plant coming up in Bargwan, MP.

All the major approvals are in place and site activities are progressing well. Major contractors have mobilised at site. A major chunk of land is already acquired. Major orders have been placed for both the smelter and the power plant. Around 58 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
This integrated aluminium project is 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 placed for both the smelter and the power plant. Around 51 per cent of the total project cost for the Smelter and power plant has been committed .The first metal from the smelter is slated for October 2011. The refinery would be mechanically completed by June 2013.

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

Industry outlook

Aluminium
Global aluminium demand contracted in the first six months of the Indian financial year by 11 per cent. Worldwide production continues to exceed consumption, although in the last few months consumption has been rising faster than production.

At the end of September, LME stocks have moved down from a high of 4.62 million tons marginally to 4.59 million tons.

China and India are the two growth countries for aluminium with India growing as much as 14.7 per cent in the first half of the year. Considering that the first half of the last financial year was only seeing the beginning of the recessionary period, this is indeed encouraging.

Downstream demand in India has caught on considerably compared to the second half of the last financial year. The electrical and transportation sectors have done very well while building and construction is showing signs of arrival. Consumer durables and packaging have continued on the high growth path.

Copper
Copper prices have sustained their strength, aided by a brighter outlook on global economy and improved risk sentiment. However, rising exchange stocks and muted Chinese imports may cap further uptrend in prices.

The Indian copper market benefited from the robust trend in the electrical segment and poor scrap availability in H1. But increased scrap availability and high LME could act as a dampener for growth in refined copper market in the coming months.

Following last year’s financial meltdown, delays in copper mining projects have led to tightness in the global concentrate market, resulting in depressed spot TcRc. The easing of the market seems less likely in the imminent future.

Company outlook
The upward trends in the commodity prices and also demand in the key markets in which the company operates are encouraging, however the higher input cost especially the cost of coal is a concern. With aggressive cost containment, enhanced asset productivity, higher share of value added products and strong fundamentals, the outlook of the company remains cautiously positive in both the short term and long term.

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