 "Hindalco: High costs, lower margins hurt profit")
Aluminium major Hindalco's net profit declined 31 per cent to Rs 347 crore in the June quarter compared to last year on lower margins in the aluminium business and higher power and interest costs. While revenues grew 26 per cent year-on-year to Rs 7,996 crore, the comparison is not like-to-like as the Mahan and Aditya smelters were not in operation last year. Sequentially, revenues are down five per cent while operating income declined 11 per cent.
Analysts say the reason for the sequential decline in operating income is due to higher costs and fall in the aluminium segment's EBIT margin (earnings before interest and tax) by 64 basis points year-on-year and 93 basis points quarter-on-quarter to 10.6 per cent. Power costs went up by 41 per cent y-o-y and 23 per cent q-o-q during the quarter, which hit profitability.
In the copper segment, on the other hand, margins have improved sharply by 400 basis points y-o-y and 47 basis points q-o-q to 6.35 per cent. However, the copper segment does not drive the bottom line, which is why the improvement in the segment has not helped arrest decline in profit.
The company has not reported sales volume and as a result realisation per tonne is not available. This has made earnings projections rather difficult for investors and analysts. During the quarter, Utkal Alumina produced 199,000 tonnes of alumina but the company has not given details of sales volumes or the price realised.
Analysts claim with no financial details on how much Utkal has contributed to the operating profit, it is difficult to arrive at earnings estimates for the company. Goutam Chakraborty of Emkay Global says: "FY15 will be a challenging year for the company. It would be interesting to know how the new capacities in Utkal, Aditya and Mahan are ramping up. The cost of production at these units would be crucial. Also, aluminium prices and physical premium have been supportive in India, but any drop in either would be negative."
Analysts say the reason for the sequential decline in operating income is due to higher costs and fall in the aluminium segment's EBIT margin (earnings before interest and tax) by 64 basis points year-on-year and 93 basis points quarter-on-quarter to 10.6 per cent. Power costs went up by 41 per cent y-o-y and 23 per cent q-o-q during the quarter, which hit profitability.
In the copper segment, on the other hand, margins have improved sharply by 400 basis points y-o-y and 47 basis points q-o-q to 6.35 per cent. However, the copper segment does not drive the bottom line, which is why the improvement in the segment has not helped arrest decline in profit.
The company has not reported sales volume and as a result realisation per tonne is not available. This has made earnings projections rather difficult for investors and analysts. During the quarter, Utkal Alumina produced 199,000 tonnes of alumina but the company has not given details of sales volumes or the price realised.
Analysts claim with no financial details on how much Utkal has contributed to the operating profit, it is difficult to arrive at earnings estimates for the company. Goutam Chakraborty of Emkay Global says: "FY15 will be a challenging year for the company. It would be interesting to know how the new capacities in Utkal, Aditya and Mahan are ramping up. The cost of production at these units would be crucial. Also, aluminium prices and physical premium have been supportive in India, but any drop in either would be negative."