Aluminium major Hindalco Industries missed street expectations on all counts on Thursday. Net profit grew 7.5 percent year-on-year to Rs 359 crore. Discussing the earnings, Tarang Bhanushali of IIFL said the high finance cost dented the bottomline of the company. “We were expecting the margins to improve considering raw material pricing have also gone down which are linked to crude oil prices. Overall, the performance looks a bit disappointing at the moment largely due to the aluminium,” he added.
He recommends accumulating the stock with a target price of Rs 160 per share.
Below is verbatim transcript of the interview:
Q: These are the key numbers we have about Rs 8470 crore on the topline and about Rs 360 crore on the bottomline, what is your initial reaction?
A: Both these numbers are below our estimate. We were estimating topline to be around 87.5 billion and bottomline around 4.6 billion.
The disappointment has come at the aluminium side where the EBIT numbers on quarter-on-quarter (QoQ) basis is below our estimates.
Q: Can you apprise us of what the aluminium performance has been on the EBIT level which has disappointed you?
A: We were expecting the aluminium division to do well as volumes were expected to rise and the coal situation was also improving. During the quarter the premium stayed high so we were expecting some improvement there. However, the number does not look that good at the moment.
Q: If I just see the segmental performance I get aluminium EBIT of Rs 384 crore which compares with Rs 169 crore on a year-on-year (YoY) basis so that is more than doubling. Even then you would say that it is disappointing performance by aluminium?
A: Over the last one year the company has rammed up its production at the new capacities. Also aluminium prices including premiums have been higher and so, we were expecting an improved performance and also the previous two quarters we had some start cost of the Mahan smelters.
Therefore, we were expecting the margins to improve considering raw material pricing have also gone down which are linked to crude oil prices. So overall the performance looks a bit disappointing at the moment largely due to the aluminium.
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