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Company Poised for A Quantum Growth Leap
Financial Highlights
| |
Audited standalone |
Audited consolidated |
| |
Year ended |
Year ended |
| (In Rs. crore) |
31-Mar-11
|
31-Mar-10
|
31-Mar-11
|
31-Mar-10 *
|
| Net sales and operating revenue |
23,859
|
19,522
|
72078
|
60708
|
| Other income |
317
|
260
|
431
|
323
|
| EBITDA* |
3,502
|
3,210
|
8433
|
10,069
|
| Depreciation and impairment |
687
|
667
|
2750
|
2784
|
| Interest and financing charges |
220
|
278
|
1839
|
1104
|
| Profit before tax |
2,595
|
2,265
|
3843
|
6181
|
| Provision for tax |
469 |
462 |
974 |
1932 |
| Tax adjustment for earlier years |
11
|
113
|
(10)
|
(103)
|
| Profit before minority interest |
|
|
2,879
|
4352
|
| Minority interest |
|
|
366
|
424
|
| Share in (Profit)/loss of associates (Net) |
|
|
57 |
3 |
| Net profit |
2137 |
1916 |
2456 |
3925 |
| EPS (Basic) (Rs.)* |
11.17 |
10.82 |
12.84 |
22.17 |
| * Consolidated results include pre-tax adjustments for unreliased derivative gain / (loss) of Rs. 2,736 crore in FY10 Vs. Rs. (291) crore in FY11 |
Hindalco Industries Ltd., the flagship company of the Aditya Birla Group, today announced its standalone and consolidated audited financial results for the year ended 31 March 2011.
Consolidated results
Hindalco’s consolidated revenue at Rs. 72,078 crore has been the highest ever, a growth of 19% year-on-year. Strong volumes, improved mix and higher commodity prices have been the growth drivers.
Profit before depreciation, interest and taxes stood at Rs. 8,433 crore as against Rs. 10,069 crore in FY10, which is inclusive of Rs. 2,736 crore (USD 578 million) of unrealised gains on derivatives in FY10, as against unrealised loss of Rs. 291 crore (USD 64 million) in FY11. The underlying performance of the current year sets a new record, reflecting the inherent strength of the company’s low cost business model, operational excellence, superior product mix and a balanced and de-risked portfolio.
Adjusted consolidated EBITDA rose by 25% (31% in Dollar terms) compared to FY10:
| Rs.crore |
|
|
| |
FY 11
|
FY 10
|
| EBITDA |
8,433
|
10,069
|
Less:
Unrealised Gain /(Loss) on derivatives - Novelis |
(291)
|
2,736
|
| Transitional adjustment on adoption of AS-30 - India |
|
349 |
| Adjusted EBITDA |
8,724 |
6,983 |
Interest expenses increased from Rs. 1,104 crore to Rs. 1,839 crore mainly due to one-time debt issuance cost related to the refinancing of USD 4.8 billion at Novelis in December 2010 and consequent higher interest in Q4. The debt issuance cost was expensed in the year of occurrence in Indian GAAP, unlike in US GAAP, where it is amortised over the life of the debt.
Segment performance
Of the total annual revenue of Rs. 72,078 crore, the aluminium business contributed Rs. 56,084 crore, up 17% over the last year. Aluminium EBIT is at Rs. 4,469 crore compared to Rs. 5,998 crore in FY10. As indicated above, FY10 EBIT includes an unrealised gain on derivatives of Rs. 2,736 crore and transitional adjustment for AS-30 Rs. 349 crore. The results reflect a strong performance in the aluminium business in India and at Novelis.
In the copper business, revenue is higher at Rs. 15,887 crore, a rise of 26% from Rs 12,573 crore in FY10, mainly on account of higher volumes, higher copper LME and by-product credits. The benefits of the marked improvement in operational efficiencies were partially offset by lower TcRc and higher energy cost. The copper mines in Australia contributed significantly to the copper EBIT on the back of higher LME, despite a surge in input costs. EBIT of Rs. 1,082 crore for the copper business is 8% higher over last year.
Standalone results
Revenues for the year crossed USD 5 billion mark
For the year ended 31 March 2011, net sales at Rs. 23,859 crore grew by 22%. Highest ever copper volumes, better product and geographic mix, by-product credit and higher realisation led by higher commodity prices enabled the company clock an impressive growth.
Input cost pressures, lower TcRc and one-timers associated with the Hirakud power outage have been some of the constraints faced in attaining even higher levels of performance.
Other income at Rs. 317 crore was higher on account of better yields and higher treasury corpus, post the return of capital by Novelis. Interest was lower due to lower working capital borrowing coupled with lower international interest rates.
EBITDA for FY11 stood at Rs. 3,502 crore as against Rs. 3,210 crore in FY10, inclusive of a gain of over Rs. 349 crore, arising on account of AS-30 transition. FY11 EBITDA was constrained by the one-timers mentioned above.
Novelis Inc. (Wholly-owned subsidiary of Hindalco)
Novelis is poised for rapid transformational growth. It has posted a net income of USD 116 million under US GAAP. The adjusted EBITDA at a record level of USD 1.1 billion was up by 42%. Novelis reported a solid free cash flow of USD 310 million.
The record results at Novelis reflect a number of ongoing initiatives to strengthen the business and prepare it for transformational growth. The global realignment of the organisation towards operating as a fully integrated global company, optimising the company’s footprint and reducing its cost base by closing underperforming and non-core plants and by investing in recycling initiatives fuelled its growth. The focus is on premium products, which now comprise over 70 percent of Novelis’ product portfolio.
Other strategic initiatives like the expansion of the company’s Pinda mill in Brazil and global debottlenecking projects designed to increase capacity have been growth enablers as well.
Furthermore, refinancing and recapitalising the business has positioned the company to significantly invest over the next few years to capture strong market growth in its key product segments globally.
Novelis has operated its assets at or near capacity for the entire year. The company intends to use its strong operating cash flow to fund $1.5 billion in capital expenditure over the next three years. The previously announced rolling mill expansion in Brazil and the recently announced expansion in Korea as well as strategic automotive expansion in North America are key focus areas in the near term to capitalise on future growth and solidify its position as the leading player in the global FRP industry.
Shipments of aluminium rolled products totalled 2,969 Kt for FY11, an increase of 10 % compared to shipments of 2,708 Kt in the previous year. This increase in shipments for the year was driven by strong end-market conditions across all product segments globally, particularly in can, automotive and electronics. Net sales for FY11 were $10.6 billion, an increase of 22 % compared to the $8.7 billion reported for FY10.
Over the next year, Novelis expects continued strong demand in its key product segments. As a result, capital expenditure for FY12 is projected to be between $550 and $600 million. Much of this capital is earmarked for strategic investments, which include Brazilian and Asian rolling mill expansions, strategic automotive capacity increase in North America and recycling initiatives across operating regions. The company plans to primarily use its strong operating cash flow to fund this capital expenditure.
Aditya Birla Minerals Ltd [51% subsidiary of Hindalco]
Nifty mines recorded the highest copper production and also highest ore mine processed to date.
Production of copper was at an all time high at 59.6 Kt despite lower copper grade. Mount Gordon has received the requisite approval for mining. Net profit for the year is AUD 57 Million against AUD 61 Million in FY10.
Dividend
The Board of Directors of Hindalco has recommended a dividend of Rs. 1.50 per share i.e. 150% aggregating to Rs. 287.16 crore. Together with corporate dividend tax of Rs. 46.59 crore, the total payout works out to Rs. 333.75 crore.
Expansion projects
Hindalco - India
Brownfield expansion projects
Hirakud smelter expansion: The smelter expansion at Hirakud from 155 KTPA to 161 KTPA was completed in Q4 FY11. A further expansion from 161 KTPA to 213 KTPA, along with a 100 MW captive power plant [CPP] will be completed in early 2012.
The next phase of expansion of the smelter from the proposed 213 KTPA to 360 KTPA, with a corresponding increase in CPP capacity from 467.5 MW to 967.5 MW is under evaluation. The environmental clearance for this is already in place.
Hirakud flat rolled products [FRP] project: This project is underway for the transfer of all key equipment for FRP production from Novelis plant at Rogerstone, UK to Hirakud. In addition, orders have also been placed for related and balancing equipment. This will enable the company to produce a wide range of superior engineering products, including can-body stock, for the local and export markets. The project is slated for completion towards end-2011. Around 2,000 people are working at the site on civil and structural jobs.
Belgaum special alumina: The Specials Plant expansion from 189 KTPA to 301 KTPA, with a coal based co-generation power plant. Natural gas adaptation for its rotary kilns is being evaluated.
Greenfield projects
The company has embarked on an aspirational growth path towards which, three new aluminium smelters and two new alumina refineries are being set up in the states of Odisha, Madhya Pradesh and Jharkhand. With these projects on stream, aluminium smelting capacity will touch around 1.7 mio-tonne and alumina refining capacity around 6 mio-tonne.
Of these greenfield projects, three projects, viz. Utkal Alumina [UAIL], Mahan Aluminium and Aditya Aluminium, with a capital outlay of USD 5 billion are at an advanced stage of execution. The equity for these projects has been financed by internal accruals and QIP issuance of USD 600 million in November 2009. The company has achieved the financial closure of UAIL and Mahan Aluminium through debt financing. The process of financial closure for the debt component of Aditya Smelter will be launched soon.
These greenfield projects are located at remote places, without adequate infrastructure and in an uncertain regulatory environment. The company is in the process of building necessary infrastructure to support the execution of the project, followed by transition to regular commercial operations.
While the critical long lead equipment for UAIL, Mahan and Aditya Smelters have been tied up and committed, severe inflationary pressure is being witnessed, triggered by increase in the commodity and fuel prices, for the ongoing civil and other related activities. An overview of the projects is as indicated below:
| Project |
Description |
Location |
Commissioning |
Financing |
| Utkal Alumina (UAIL) |
1.5 mio-tonne Alumina refinery with integrated Bauxite mines * |
Rayagada, Odisha |
2012 |
Finacial closure completed with debt-financing of Rs. 4,906 crore |
| Mahan Aluminium+ |
359 KTPA Aluminium smelter & 900 MW CPP ** |
Mahan, MP |
End 2011 |
Finacial closure completed with debt-financing of Rs. 7,875 crore |
| Aditya Aluminium+ |
359 KTPA Aluminium smelter & 900 MW CPP *** |
Lapanga, Odisha |
End 2013 |
Equity part already tied up, debt financing to be launched shortly |
| Aditya Aluminia |
Alumina refinery with integrated Bauxite mines |
Koraput, Odisha |
2014 |
|
| Jharkhand Aluminium |
Aluminium smelter |
Sonahatu, Jharkhand |
2015 |
|
| * MoEF approval for 3 mio-tonne / annum |
| ** MoEF approval for 325 KTPA and 750 MW CPP |
| *** MoEF approval for 260 KTPA and 600 MW CPP |
| + the process of seeking approvals is in progress |
Utkal Alumina International Ltd (UAIL): The construction of the alumina refinery, along with a 90 MW captive co-generation plant is in progress at UAIL, a 100% subsidiary of the company. The output from UAIL would be sufficient to feed alumina to the Mahan and the Aditya Smelters. Contractors have mobilised more than 9,000 people at the site. The erection of major equipment like boilers, evaporators and turbines has begun.
The project performance review of some of the contracts indicates slippage in performance of certain contractors, mainly in the area of civil work. In order to avoid further slippage, some of the non-performing contractors have been suitably replaced with new contractors, who have better performance track record.
This has resulted in an additional estimated cost of Rs. 600 crore, as fresh contracts are at the current market price, with built-in bonuses referenced to the project milestone.
Some of the delayed contracts have a cascading impact on the timely execution of other contracts and have the potential to increase both time and cost of the overall project. Internal accruals and free cash flows are adequate to meet the probable overruns, which are being estimated.
Despite these overruns, the project capital cost continues to be favourably benchmarked with the capital cost of other comparable global projects.
The operating cost of this project will continue to be in the lowest cost quartile of the global cost of production and will continue to be value accretive.
Mahan Aluminium Project: This 359 KTPA aluminium smelter, along with 900 MW CPP, is coming up in Bargwan, Madhya Pradesh.
Contractors have mobilised about 16,000 people at the site. Engineering for the project is complete and major equipment for both the smelter and the CPP have started arriving at the site. Civil foundation, fabrication and erection of structures have progressed substantially at both the smelter and the CPP.
As indicated earlier, severe inflationary pressure is being witnessed, triggered by increases in commodity and fuel prices for the civil and other related activities of the project.
The project cost and timelines of these contracts are being reviewed.
The coal requirement for the CPP will be primarily met from Mahan Coal Block, being developed by Mahan Coal Limited (MCL), a joint venture between the company and Essar Power Limited.
As communicated earlier, Mahan Coal Block was included under the category of ‘No Go’ area. An empowered group of ministers has been set up to resolve all environment and forest issues for coal mines under “No Go” areas, meetings for which were held in February and April 2011, with the next meeting expected shortly. The company continues to be optimistic of a favourable outcome in the matter.
The company is in the process of finalising the arrangements for mining to fast-track the development of the mines, once the final forest clearance is received. As an interim measure, the company has applied to the Ministry of Coal for temporary supply of coal (tapering linkage) to the Mahan CPP, until the company’s own mines commence operating at full capacity.
Expansion projects
Novelis - South America
Pinda is the largest aluminium rolling and recycling facility in South America in terms of shipments and the only facility in South America capable of producing can-body and end-stock. Pinda recycles primarily used aluminium beverage cans and is engaged in tolling recycled metal for its customers. In response to the growing demand for the company’s products in South America, a plan to invest nearly USD 300 million to expand the aluminium rolling operations in Pinda was announced earlier. This expansion will increase the plant’s capacity by more than 50% to approximately 600 Kt of aluminium sheet per year. The project is expected to come on stream by late 2012.
Novelis - Asia
In May 2011, Novelis announced plans to invest approximately USD 400 million to expand the aluminium rolling and recycling operations in South Korea, in response to the growing demand in Asia and the Middle East. The rolling expansion, which will include investments in both hot rolling and cold rolling operations, will increase aluminium sheet capacity in Asia to 1,000 Kt annually. As a response to the projected market growth in the region, this move is designed to rapidly bring to market, high-quality aluminium rolling capacity, aligned with the projected needs of a growing customer base. The new capacity is expected to be commissioned in financial year 2013. The expansion will increase Novelis' aluminium sheet capacity in Asia by more than 50% and will also include the construction of a state-of-the-art recycling centre for used aluminium beverage cans and a casting operation.
Company outlook
Hindalco is well poised to emerge as “one global metal business” with the India-centric upstream business and the global value-added downstream business.
The company has embarked on an ambitious growth path with an announced investment plan of over USD 6.5 billion in India and overseas in the next three years. With these projects coming on stream, Hindalco is set for a quantum growth leap.