Hindalco Q3 EBITDA seen down 4.7% at Rs 651 cr

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By Nigel D'souza, Research Analyst at CNBC-TV18

Country's largest aluminium producer Hindalco Industries ' standalone profit after tax is expected to be flat at Rs 459.4 crore in the October-December quarter of FY12 as against Rs 460.3 crore in a year ago quarter.

Net sales are seen going up by 6.8% to Rs 6,319.6 crore from Rs 5,917.9 crore year-on-year.

EBITDA is likely to fall 4.7% to Rs 651.2 crore from Rs 683.4 crore during the same period.

EBITDA margin is expected to be falling at 10.3% in the third quarter of FY12 versus 11.5% in the corresponding quarter of last fiscal.

On quarter-on-quarter basis, net sales are seen going up by 1.6% and EBITDA too is likely to go up 5.4%. EBITDA margin is too seen improving at 10.3% versus 9.9%. However, PAT is likely to fall 8.6%.

Factors to watch:

- Earnings likely to be driven by higher metal volumes and rupee depreciation

- But LME prices will be a dampener: As the fall in commodity prices was higher than the fall in INR

- During Q3FY12, LME prices of aluminum and copper declined sharply to USD 2,100 and USD 7,500

- EBITDA margins will be under pressure on a YoY basis but a slight improvement on a QoQ basis:

- Due to lower LME metal prices and high coal prices on a y-o-y basis

- Costs pressure is expected to moderate QoQ and performance is not likely to improve due to fall in realization

- Marginal reduction in input costs on a q-o-q basis as coal supply improves post monsoon

- 2QFY12 was affected by coal shortage due to heavy monsoon, and company had to rely on external purchase of high cost electricity

- Lower power & fuel costs are expected to neutralize the effects of lower LME prices

- PAT: Will be supported by higher treasury yields and enhanced corpus which will more than offset the higher interest costs

Volumes:

- Likely to report a steady improvement in alumina and aluminium production on YoY as well as sequential basis

- Copper production is likely to witness strong growth of 13% QoQ, but YoY growth would remain at 5-6% and will drive the topline as copper business contributes more than 65% to the topline

Positives going ahead:

- Effect of recent increase in TcRc is not being considered in the quarter but its effect will be visible in CY12:

- Treatment and refining charges (TcRc) up 12.4% for CY2012:

- Higher copper fees and a weakening rupee will cushion Sterlite from waning demand due to the economic slowdown as they are in anticipation of a resurrection in demand

- Leading companies like Jiangxi Copper and Freeport-McMorgan Copper Gold have reached an agreement to raise TcRc by 12.4% yoy to USD 63/tonne and 6.35c/lb, respectively, for CY2012

- Greenfield projects are progressing gradually and have seen both time and cost overruns over last few quarters:

- Utkal Refinery project is now likely to be commissioned 3QFY13, while Mahan Phase-I is likely to be commissioned in 4QFY12