Hindalco: On a roll

Higher aluminium prices neutralise Hindalco's cost pressures

Hindalco is reported to be evaluating domestic and overseas options to raise $1 billion for funding its expansion projects across the country. With demand for metals expected to remain strong for several more years, it is logical for the company to expand capacity.

Also, by bringing its copper smelter capacity at Dahej to global standards, it should help the company to be even more cost competitive at international levels and better withstand overseas competition. Earlier, the government had reduced import duties on copper by about 10 per cent.

Meanwhile, Hindalco has reported a better performance for the December quarter, largely due to improved performance of its aluminium business.

Overall net profit has grown 35 per cent to Rs 264.9 crore in the last quarter. Domestic aluminium prices have gone up about 12 per cent year-on-year. The company's metal production rose nine per cent in the December quarter.

Coupled with increasing emphasis on higher value products, this has helped to neutralise the impact of higher cost of inputs like bauxite, caustic soda and CP coke. Segment profit has expanded 46.9 per cent to Rs 335.2 crore.

The performance of its copper division was lacklustre "" growth in segment profit was merely 2.86 per cent to Rs 79 crore, as the company had to contend with higher input costs coupled with lower import duties.

The disappointing performance of the copper division is being viewed as largely responsible for the 3.5 per cent or so drop in the stock over the last 4 weeks.

However, with several smelters across the globe going in for maintenance shutdowns in H1 CY05, TC/ RC rates are expected to improve and hence drive segment profit.

A larger turnover has helped overall operating profit to grow 33 per cent to Rs 495.3 crore in the December quarter and operating profit margins have also expanded 188 basis points to 24.22 per cent.

With aluminium prices expected to remain strong in 2005, profit growth is expected to continue.

BHEL

The stocks of key power equipment suppliers rose with the government passing the National Electricity Policy.

This policy focuses on expanding the rural electricity network and, over the next 6- 18 months, this measure is expected to expand the order books of key suppliers of power equipment.

Meanwhile, Bharat Heavy Electricals Ltd (BHEL) has seen its net profit grow 79.5 per cent to Rs 237.40 crore in the last quarter.

The capacity expansion currently underway (in both the public and private sectors) has helped the PSU giant's net sales to grow 28.2 per cent to Rs 2529.67 crore.

Prominent orders won by the company in the last quarter include a Rs 1774 crore contract from Jindal Power Ltd and also from the Madhya Pradesh electricity board for Rs 825 crore.

However, raw material costs too have jumped 28 per cent in the last quarter, largely due to higher steel prices.

Nevertheless, a larger revenue has helped neutralise the rise in input costs "" operating profit grew 32.7 per cent to Rs 353.02 crore in the December quarter and operating profit margins too have improved 47 basis points to 13.95 per cent. Recent orders have helped BHEL's outstanding order book to reach Rs 31700 crore at the end of the December quarter, a year-on-year growth of 34.9 per cent.

Going forward, while the outlook is positive for the PSU giant but, keeping a tight check on rising input costs would also play an important role.

Procter & Gamble

P&G carries out its core detergents business under an unlisted subsidiary, but sources these products from its listed entity, P&G Hygiene and Health Care (PGHH). PGHH's latest segment results show that the rate at which contract manufacturing revenues grew has come down.

In the first six months of calendar year 2004, the period when P&G benefited most from the detergent price cuts, contract manufacturing revenues of PGHH had grown by 95 per cent. In the second half of the year, the growth rate has halved to 47 per cent.

But P&G wouldn't be complaining. The growth rate is still much higher than the industry's. The growth in contract manufacturing revenues would reflect just volume growth of P&G's detergents business.

Value growth would be much lower because of the massive price cuts taken earlier in the year. What's important, however, is that P&G has made sizeable market share gains as a result of the price cuts.

Although the growth rate has fallen in the second half of the year, the contract manufacturing revenues have grown sequentially. This means that market share gains continue. It's no wonder P&G is showing no signs of relenting on its low price strategy.

It recently announced that it would increase detergent prices, but only to the extent of five per cent and that too on larger packs. The price increase is only to offset a sharp rise in the prices of LAB, a key input.

HLL, too, is reported to be following suit. But price increases in the range of 5-6 per cent will hardly lead to an increase in profitability since input prices have risen as sharply.

With contributions from Amriteshwar Mathir & Mobis Philipose