Hindalco Industries Limited Performance Review Q3 FY08 30 th January 08
Highlights & Backdrop
Backdrop : Q3 FY08 Adverse Global Macro economic factors US Sub prime crisis a double barrel impact: A sharp drop in the US primary aluminium consumption as the two major aluminium consuming sectors, housing & automobile witnessed a significant slow down and 48 47 46 45 44 43 42 41 40 39 38 37 Weakening dollar (INR appreciated by 12% from Rs.45.2/$ during Q3 FY07 to Rs.39.7 /$ during Q3 FY08) Indian Rupee continuously appreciating 42.15 39.46 April'06 Aug'06 Dec'06 April'07 Aug'07 Dec'07
Adverse Global Macro economic factors Primary aluminium production growth rate out stripped demand growth rate primarily on account of Decline in the demand from the US and Japan Increased supply from the US & Chinese smelters due to high aluminium prices in the previous quarters (in USD terms). Year end de-stocking resulted in further pricing pressure on aluminium in Q3 Copper mines struggled to increase concentrate production while the smelters continued increasing production in line with growing demand- Good news for integrated smelters but a difficult period for Custom smelters. A sharp increase in energy/fuel and other raw material costs
Adversities On Domestic Front Too Reduced Import duty Aluminium import duty differential Aluminium Customs duty down from 8.08% to 5.72% 33.0% 31.0% 28.0% 19.0% 15.0% 10.6% 8.1% 5.7% FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 Copper Duty Differential 33.0% 30.0% 20.0% 18.8% Copper duty differential down from 5.1% to 3.1%. 11.3% 5.7% 5.1% 3.1% FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08
Impact Of Adverse Macroeconomic Trends Aluminium stocks going up there by pulling down LME to the lowest level in last two years Significant fall in Al LME (in INR & USD terms) during Q3 FY08 (Mt) 1,200,000 1,100,000 3,240 1,000,000 900,000 800,000 700,000 600,000 500,000 3/Apr/06 12/May/06 10/Jul/06 5/Sep/06 31/Oct/06 27/Dec/06 22/Feb/07 23/Apr/07 20/Jun/07 16/Jul/07 3,800 3,300 2,800 2,437 2,400 2,300 1,800 1,300 800 11/Sep/07 6/Nov/07 US$/Mt 7/Jan/08 2,750 2,700 2,650 2,600 2,550 2,500 2,450 2,400 2,350 2,300 123,077 2,724 Q3 FY07 LME US$ LME INR -21% 97,105 2,443 Q3 FY08 130,000 125,000 120,000 115,000 110,000 105,000 100,000 95,000 90,000 85,000 80,000 as well as 9M FY08 2,630 118,303 120,000 2,620 2,610 2,600 2,590 2,580 2,570 2,626-12% LME US$ LME INR 108,146 118,000 116,000 114,000 112,000 110,000 108,000 106,000 o For the quarter o Al LME down by 10% o While Rupee LME down by 21% 2,560 2,576 104,000 2,550 9M FY07 9M FY08 102,000
Copper- Strong Demand & Prices Copper LME continues to be strong with falling stock Weakening spot TC/RC (Mt) 1,600,000 1,400,000 LME CSP US$ US$/Mt 8,000 7,000 140 120 Indexed. Base=100 1,200,000 6,000 100 1,000,000 5,000 80 800,000 4,000 60 600,000 3,000 40 400,000 2,000 20 200,000 1,000 0 0 2002 2003 2004 2005 2006 2007 0 Apr-05 Jun-05 Aug-05 Oct-05 Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 But little to cheer for Custom smelters as TC/RC remained subdued.
Hindalco s Actions Some of these trends were anticipated and the following steps had already been planned: 1. Brownfield expansions Aluminium o Alumina o Hirakud production grew by 46% compared to Q3 FY07 on the back of expanded capacity Muri commissioning in progress 2. Metal Production growth Higher Metal production from existing plants (for both Aluminium and Copper)
Hindalco s Actions 3. Continued sweating of assets in downstream businesses resulting in increased production 4. Focus on improving the realisations of value added products
Financial Highlights Q3 & 9M FY08 (Rs. Cr) Q3 FY08 Change (%) 9M FY08 Change (%) Net Sales & Op. Revenue 4,532-3% 14,169 4% EBIDTA 915-17% 2,955-8% Pre-tax profits 707-21% 2,340-8% Net Profit 543-16% 1,788-3% EPS (Per Share) 4.42-32% 15.58-17%
All round increase in production (Mt) Aluminium 111,871 121,971 Q3 FY07 Q3 FY08 17,777 18,458 10,364 11,472 6,234 6,472 58,000 59,365 Primary Metal Wire Rods FRP Extrusions Foils Source: Company Data All round improvement in production
Higher Sales Volume Sharp improvement in Aluminium sales volume Aluminium Accompanied with increased value added Sales (Mt) 125000 121,991 140,000 (Mt) Primary Value added 120000 120,000 115000 +12% 100,000 80,000 60,472 +5% 63,747 110000 108,935 60,000 105000 40,000 20,000 48,461 +20% 58,244 100000 Q3 FY07 Q3 FY08 0 Q3 FY07 Q3 FY08
Copper: key levers of performance.. Copper Cathode production rose by 7 % compared to Q3 FY07 to 78KT. Continuous Cast Rod production rose by 38% compared to Q3 FY07 to 34KT Sales increased by 4 % compared to Q3 FY07 to 79KT Operating efficiency and Conversion cost improved. Better realization due to improved product mix (more domestic & CC rod). Significant improvement in by-product Realization as compared to Q3 FY07.
Detailed Financials
Drivers of performance Q3 FY08 Particulars Unit Q3 FY08A Q3 FY07A Al LME $/t 2,443 2,723 Re. / USD Rs. 39.7 45.2 Al. Basic Customs Duty % 5.0 7.5 Domestic Ingot Realisation Rs/t 103,137 126,679 Copper Tc/Rc c/lb 21.7 37.0 Cu LME $/t 7,220 7,039 Cu Duty Differential % 3.10 5.10
Detailed Financial Results Q3 FY08 Rs.Crs. Q3 Q3 % YTD YTD % FY 08 FY 07 change FY 08 FY 07 change Net Sales 4,532 4,656-3% 14,169 13,564 4% Total Expenditure 3,731 3,611 3% 11,563 10,599 9% Other Income 114 58 96% 349 247 41% PBDIT 915 1,104-17% 2,955 3,212-8% Depreciation & Impairment 146 139 5% 433 480-10% PBIT 769 965-20% 2,522 2,731-8% Interest & Finance Charges 62 70-11% 182 185-2% Profit Before Tax 707 896-21% 2,340 2,547-8% Provision for Taxes 164 252-35% 552 704-22% PAT 543 644-16% 1,788 1,843-3% EPS 4.4 6.5-32% 15.6 18.8-17%
ALUMINIUM
Aluminium: Production Performance Q3 FY08 Unit Q3 FY08A Q3 FY07A % Chg Alumina MT 304,059 308,344-1.4% Metal MT 121,971 111,871 9.0% Wire Rods MT 18,458 17,777 3.8% Rolled Products MT 59,365 58,000 2.4% Extrusions MT 11,472 10,364 10.7% Foil MT 6,474 6,234 3.8% Alloy Wheels Nos. 41,368 51,364-19.5% Power MU 2,149 2,089 2.9%
Aluminium: Sales Revenues Q3 FY 08 Sales Revenue Unit Q3 FY08A Q3 FY07A % Chg Alumina Rs.Crs. 131 141-7% Primary Metal Rs.Crs. 415 392 6% Wire Rod Rs.Crs. 198 233-15% Rolled Products Rs.Crs. 614 652-6% Extrusions Rs.Crs. 165 163 1% Foils Rs.Crs. 125 143-12% Wheels Rs.Crs. 9 10-9% Others Rs.Crs. 73 61 19% Net Sales Rs.Crs. 1,729 1,796-4% Of which Exports Rs.Crs. 390 352 11%
Aluminium: Sales Volumes Q3 FY 08 Sales Tonnage Unit Q3 FY08A Q3 FY07A % Chg Alumina MT 57,343 56,998 1% Primary Metal MT 40,167 31,025 29% Wire Rod MT 18,077 17,436 4% Rolled Products MT 46,014 43,537 6% Extrusions MT 11,333 10,273 10% Foils MT 6,400 6,664-4% Wheels Nos 37,734 44,065-14%
COPPER
Copper : Production Performance Q3 FY08 Production Unit Q3 FY08 Q3 FY07 % Chg Copper Cathodes MT 78,333 72,904 7.4% CC Rods MT 34,471 24,942 38.2% DAP/NPK MT 36,066 39,757-9.3%
Copper: Sales Revenues - Q3 FY 08 Rs. Crs. Product Q3 FY 08 Q3 FY 07 % Chg Copper Cathodes 1273.3 1508.2-15.6% CC Rods 1071.6 861.7 24.4% DAP/NPK 67.1 56.6 18.7% Sulphuric Acid 53.1 12.2 334.8% Gold 187.9 269.3-30.2% Silver 24.7 15.9 55.1% Others 128.5 138.2-7.0% Total Sales 2806.2 2862.0-2.0% of which Exports (FOB) 1124.3 1498.9-25.0%
Copper : Sales Volumes Sales Volumes Unit Q3 FY08 Q3 FY07 % Chg Copper Cathodes & Others MT 44,495 50,391-11.7% CC Rods MT 34,317 25,209 36.1% DAP/NPK MT 36,178 37,181-2.7% Sulphuric Acid MT 182,757 153,731 18.9% Gold Kg 2,002 3,060-34.6% Silver Kg 1,4503 8,896 63.0%
Company Results Rs.Crs. Segment Information Company Information Al EBIT Cu EBIT Interest Other Income Unallocable expenses PBT Tax PAT Q3 of FY07 755.5 159.5-69.8 58.4-8.1 895.5-251.6 643.9 Q3 of FY08 578.9 94-62.2 114.3-18.3 706.7-164.0 542.7 Change -176.6-65.5 7.6 55.9-10.2-188.8 87.6-101.2
Other Income Q3 FY08 Rs. Crs 114 23 Other Income up from Rs 58 Crs to Rs 114 Crs Non Treasury income increased by Rs 6 Crs 58 17 41 Treasury Income Q3 FY07 91 Treasury Income Q3 FY08 Treasury income is higher by Rs 50 Crs due to: Higher pre-tax treasury yield at 11.5% against 9.3% in the corresponding quarter last year Higher Avg Treasury at Rs.6302 Crs. vs. Rs.3775 Crs due to Rights issue and preferential issue,cash from operations, net of Novelis investment)
Interest & Finance Charges Q3 FY08 Q3 FY07 Q3 FY08 Gross and Net interest is Rs. Crs 163 151 lower due to 70 62 Lower average borrowing at Rs.8,005 Crs against Rs.8,910 Crs. Net Interest Gross Interest Average interest rate increased from 7.32% to 7.56%
Taxes Q3 FY08 Rs. Crores 251.58 Provision for Taxes lower due to :- 163.45 Decrease in effective tax rate from 28.1% to 23.2% due to proportionately higher exempt income 305.80 in the current Quarter 25.29 138.16 Higher capitalization led to lower current tax and higher deferred tax Current Tax Q3 FY08 Q3 FY07 Deferred Tax (54.22) In Q3 FY 07 Deferred tax assets created on income from syndicated loans subjected to current tax.