March 4, 2024

Aluminium and copper producer Hindalco Industries reported a 71.1 percent rise in its net profit for the December 2023 ended quarter (Q3FY24) on the back of a decline in costs for the period under review.

The company’s share prices, however, tumbled 12.4 percent in Tuesday trade to Rs 509.95 per piece, reacting to a more than $1 billion cost escalation in the planned capital expenditure at its US subsidiary Novelis.

Hindalco Industries reported a healthy rise of 71.1 percent year-on-year (YoY) in its consolidated net profit to Rs 2,331 crore in the quarter under review. The profit growth was helped by a decline in expenses, of around 4.86 percent YoY at Rs 49,761 crore. Revenue in the same period remained almost flat at Rs 52,808 crore, a year-on-year (YoY) decline of half a percent, reflective of the price trend on the London Metal Exchange (LME).

Satish Pai, managing director of the company, attributed the decline in costs to lower-than-expected coal and other carbon-related costs. The top executive guided that costs will remain flat for the current quarter on a sequential basis.

Despite its healthy performance for Q3FY24, Hindalco’s stock prices took a hit in Tuesday’s trade. Last evening, the company’s US subsidiary Novelis announced cost escalation in its capital expenditure for the Bay Minette project. The 600 thousand tonnes (in its first phase) aluminium facility is now expected to cost $4.1 billion, the company said. This is an escalation from the last stated $2.7 -2.8 billion capital expenditure for the same facility. In Tuesday’s media call, Pai said 80 percent of this is due to a change in civil and construction costs.

The facility of 600 KT in its first phase is to be commissioned in the second half of the calendar year 2026, according to the latest update. In October 2022, when the company broke ground for the project, the cost was estimated at $2.5 billion and was to be commissioned by mid-2025.

Other repercussions of the upward revision in capital expenditure include a change in the returns expectations and funding requirements. Pai said, ‘We had earlier guided for returns of mid-teens, we are revising it to double-digit. Further, the project was earlier expected to be fully funded through internal accruals, Pai said, the company may now need temporary bridge loans, to fund whenever the cost escalation related capital expenditure requirements show up. These loans, Pai said, will be availed at the Novelis level and in dollar denomination.

The company also missed street estimates for profits. In a Bloomberg poll, nine analysts estimated revenue of Rs 50,121 crore, and ten estimated a net adjusted income of Rs 2,435 crore.

Tushar Chaudhari, research analyst with Prabhudas Lilladher in a note on the company said, ‘Novelis disappointed with the announcement of a sharp increase in Bay Minette greenfield project cost coupled with delays which is expected to impact earnings growth over the long term. Other projects in India seem on track.’

Consolidated business Ebitda, Hindalco said, was at Rs 6,985 crore, up 36 percent YoY, helped by lower costs. Ebitda is earnings before interest, taxation, depreciation, and amortisation. Sequentially, the company’s net profit rose 6.1 percent and revenue fell 2.5 percent. The company’s net debt as of December 2023 was at Rs 34,835 crore, down from Rs 38,463 crore a year back. The India business pre-paid a long-term debt of Rs 4,370 crore during the year.

About imports into India, Pai continued to express concerns over cheaper imports from China. ‘There is a flow of cheap aluminium foil in the market from China,’ he said, adding, cheaper imports resulting from free-trade agreements with the UAE can also become a concern.

On the geo-political impact on business, Pai said costs to ship goods to the European market have risen owing to higher shipping and insurance costs. The top executive added, the company is diverting these shipments to other markets such as Korea and Japan.

First Published: Feb 13 2024 | 9:58 PM IST