Hindalco Industries: Aluminium business steals the quarterly show
The movement in LME prices from here on and the acquisition of Aleris would be key to Hindalco's future performance
August 16, 2018 / 03:16 PM IST
Strong performance in the aluminium business helped Hindalco Industries negate the impact of lower growth in the copper business. The company reported a 2.45 percent growth in sales during the quarter-ended June. During Q1, average price on the London Metal Exchange (LME) stood at $2,259 per tonne, up 18 percent.
Domestic demand has been strong, growing at 10 percent during Q1 to 924 kilo tonne. While it is operating at optimal capacity utilisation, Hindalco’s aluminium business, which accounts for about 50 percent of standalone revenue, grew 11.5 percent. The aluminium segment helped lower the impact of slow growth in copper business, accounting for close to 50 percent of its standalone revenue.Copper business
During Q1, the copper business reported a 7.4 percent drop in revenue to Rs 5,005.7 crore due to a planned maintenance shutdown at one of its smelters. Production of copper cathode fell to 81 kt as against 109 kt in the corresponding quarter last year, down 25.7 percent. Strong LME prices helped the company negate part of this impact. The quarter gone by saw LME copper prices rise 21.4 percent. Reflecting the same, copper business earnings before interest, tax, depreciation and amortisation was up 4 percent despite a fall in production and sales.
EBIDTA of the standalone business, including Utkal Alumina, was up 17.45 percent because of the 35.2 percent growth in aluminium business EBITDA to Rs 1,531 crore. The company was able to reduce its finance cost by 23 percent to Rs 603 crore, leading to a 57 percent spurt in comparable (adjusted for exceptional items) net profit to Rs 734 crore.Valuation and outlook
During Q1, Novelis reported sales of $3.1 billion, up 16 percent on a year-on -year basis. Moreover, cost efficiencies and improving spread for its value-added products helped it report 15 percent EBITDA growth. Both the domestic and international business under Novelis have been posting strong growth. The aluminium business is reporting robust cash flows.
Over the next few quarters, the copper business too will be making a higher contribution as a result of higher production and better profitability on account of lower cost. The movement in LME prices from here on and the acquisition of Aleris would be key to Hindalco's future performance. At the current market price of Rs 221 per share, the stock is trading at 9 times its FY19 estimated earnings.For more research articles, visit our Moneycontrol Research page