Weak operating environment, higher input costs hurt standalone profit; MD Satish Pai reiterates Aleris acquisition on track.
Weak operating environment and higher input costs hurt Hindalco Industries’ standalone net profit for the three months ended January-March 2019. The net fell nearly 18% year-on-year to Rs 506 crore on a year-on-year basis. The numbers include Utkal Alumina International’s financials as well.
Revenue from operations, however, were up 6.6% y-o-y to `12,455 crore during the quarter. The company’s quarterly Ebitda (earnings before interest, tax, depreciation and amortisation) of `1,733 crore also declined over 4% versus Q4FY18 as aluminium Ebitda fell 18% y-o-y due to lower LME and currency impact and copper Ebitda came in lower by 4% y-o-y on account of lower Tc/Rc and volumes, the company said in a statement.
According to analysts, in the fourth quarter, aluminium LME fell $103/tonne sequentially to $1,862/tonne. “Copper Ebitda should fall due to lower copper Tc/Rc and lower by product ASP, even though we factor an around 6% q-o-q growth in copper smelting volumes. We forecast integrated Ebitda/tonne of $463/tonne versus $553/tonne in Q3,” analysts at Jefferies wrote.
Total expenses were up about 9% y-o-y to `12,344 crore during the quarter. Power and fuel expenses surged a sharp 16% y-o-y to `1,790.14 crore.
Consolidated net debt to Ebitda stood at 2.48x at end of March 2019, while the net debt was at `14,683 crore. Net debt to Ebitda as on December 2018 was at 2.36x. Gross debt as on March 31, 2019, stood at `22,000 crore. The company, in an investor presentation, said deleveraging continues at Hindalco and it prepaid project loans of `1,575 crore in October 2018, as a result interest expenses declined 15% during FY19.
Meanwhile, Satish Pai, managing director, Hindalco Industries, reiterated that the Aleris acquisition is on track and termed the European Commission’s (EC) step of stopping the clock in the ongoing investigations for Novelis’ acquisition of Aleris was “routine”. The company is expected to complete the acquisition by July 2019.
“We are confident that we will clear all our regulatory approvals in the US, Europe and China by the second quarter of the current fiscal. It is a procedural matter and we are quite confident that we will get the clock restarted again. Aleris has an aero plant in Europe where we (Novelis) have nothing, so there is no anti-trust. It has one auto plant in Duffel which is 60KT but Europe is oversupplied in auto, so we are not really expecting any issues in Europe,” Pai said.
Analysts too do not foresee any hurdle to the deal. “In our view, the EC stopping the clock for want of documents/information is common place in transactions of such scale. Hence, we do not foresee risk to the Novelis-Aleris deal at this juncture,” analyst at Edelweiss Securities said.
Earlier this week, the EC stopped the clock in the Novelis-Aleris deal as it raised concerns that following the transaction, customers would face a reduced choice in suppliers, as well as higher prices for ABS. The EC is also investigating whether the transaction could have an effect on the supply and prices of certain aluminium flat rolled products.
The move has raised some concerns among investors as Tata Steel and German industrial group Thyssenkrupp said last week that they have given up hope of their planned 50:50 joint venture (JV) in Europe stating that the EC is not intending to clear the proposed deal as it expects substantial remedies in the form of sale of assets of the proposed venture, which if done, would affect the basic foundation of the JV adversely.