Fall in metal prices drags Hindalco Q1 net down by 31%

MUMBAI: Hindalco Industries, the Aditya Birla group flagship, on Thursday reported a 31% drop in its first quarter net profit, an improvement

over market expectations, as base metal prices fell due to the slowdown.

The Mumbai-based company, which is also India’s largest aluminium producer, said its net profit in the April-June period dipped to Rs 480.56 crore, compared with Rs 696.76 crore in the same period last year. Hindalco’s revenue fell 16% to Rs 3,899.49 crore in the same period.

The company’s performance is much better than what brokerage houses and analysts expected; the street forecast India’s largest metals company to report a net profit of Rs 305 crore, while sales was estimated to be at Rs 3,850 crore.

Prices of base metals including aluminium and copper have fallen sharply from year-ago period, thanks to the recession. On the London Metal Exchange, aluminium is down to $1,485 per tonne, compared with $2,940, a year ago. Copper fell to $4,716 per tonne, against $8,379.

“Despite the fall in metal prices and the impact from recession, Hindalco’s performance has been better than the industry average,” managing director Debu Bhattacharya told ET. “The drop (in profit) must be viewed in the context of the global economic environment, relative to metal companies.”

Though the prices are lower, Hindalco has shown volume increase, indicating recovery in demand. While production of aluminium rose 9%, the rupee depreciated close to 10%. Higher volumes and a weak rupee typically mitigate the impact of lower international prices on the operating profit.

Hindalco’s operating profit for the June 2009 quarter is four-fifths of that earned in the same quarter last year. Also, operating margin contracted by 100 basis points. Hindalco’s operating margin in copper and aluminium rose; the company’s earning before interest and tax margin for aluminium and copper business stood at 32% and 6%, respectively.

Referring to the quarterly results, Mr Bhattacharya said the earnings can’t be compared with the corresponding quarter last year due to early adoption of the AS-30 accounting standards.

AS 30 was issued by the Council of the Institute of Chartered Accountants of India and came into effect from April 1, 2009. The standard — which typically recognises and measures financial assets, financial liabilities and contracts to buy or sell non-financial items — becomes mandatory only after April 1, 2011.

Separately, Hindalco said its board approved a proposal to raise funds up to $500 million (around Rs 2,400 crore) through Qualified Institution Placement (QIP) issue or a GDR share issue.