Hindalco: Overseas growth helps mitigate domestic slump

The robust performance of the overseas subsidiary may offer some solace to investors of Hindalco Industries at a time when its domestic operations have suffered from lower aluminium production and falling copper refining charges. The gloom on the domestic front, though, may not last long given an expected trend reversal in refining charges and new capacities going on-stream in the coming quarters.

Hindalco’s operating profitability continued to remain under pressure during the September 2010 quarter despite the easing raw material prices. This was due to higher staff cost and rising finished goods expenses. But the company still reported a robust 25% growth in its net profit due to lower interest cost. Given the fact that it has repaid `2,000 crore of debt in FY 10, interest charges are expected to remain low in the coming quarters as well. This should offer some support to the bottomline.

The production volume of aluminium was lower during the September quarter on account of power outage at the Hirakhud aluminium smelter. The company is expected to report lower production even in the December quarter since full start-up and stabilisation of the smelter is expected only in the March 2011 quarter.

The Hirakhud smelter expansion project, to increase capacity from 1,55,000 tonnes per annum to 1,61,000 tonnes per annum, is nearing completion. Further expansion to 2,13,000 tonnes per annum will be completed by 4QFY12. The expansion of Utkal and Mahan plants is also on track with improving visibility.