31 July 2007

Hindalco announces Q1 FY 08 results
Click here to view the results

• Revenues of Rs. 4,678 crore
• EBITDA of Rs.1,009 crore
• PAT of Rs. 603 crore

Hindalco Industries Ltd., the flagship company of the Aditya Birla Group, today announced its unaudited financial results for the quarter ended 30 June 2007.

Net sales and operating revenues have grown by 9 per cent to Rs. 4677.9 crore as compared to Rs. 4,273.7 crore in the corresponding period in FY 07. Despite an adverse business environment, net profit for the quarter is Rs. 602.9 crore vis-à-vis Rs. 601.5 crore in the corresponding period of previous year.

Of the total revenues of Rs. 4677.9 crore, aluminium business contributed Rs. 1753.7 crore. Aluminium production in this quarter was the highest ever in a quarter. Aluminum metal sales volume rose by 7.6 per cent along with higher proportion of value-added products.

The profit before interest and tax for aluminium business was lower by 10 per cent from Rs. 712.5 crore in the corresponding quarter in the earlier year to Rs. 642 crore, mainly on account of the sharp fall in alumina realisation, impact of custom duty cut on imports and above all, the sharp appreciation of the Rupee against USD. The Rupee has appreciated 9.1 per cent from Rs. 45.77 in Q1 FY 07 to Rs. 41.49 in the current quarter. On the positive side, the aluminium business benefited from higher LME prices, better operating efficiencies, enhanced volumes through better capacity utilisation and reduced input costs due to better procurement management as well as softening international prices.

In the copper business, revenues stood at Rs. 2926.2 crore driven by higher sales volumes and improved realisation due to an enriched product mix. The profit before interest and tax increased to Rs. 112.3 crore from Rs. 97.8 crore in the corresponding quarter last year.

The copper business gained on account of operational efficiencies and higher TcRc, but was adversely impacted by the strengthening Rupee. However, in view of the sharp fall in spot TcRc, this important value driver is likely to come under strain in the coming quarters. There has been an increase in duty paid sales; its benefit has been set-off by the reduction in duty differentials. There is a significant improvement in energy consumption compared to Q1FY07. The grid power usage has come down due to increased captive power availability.

Strategic initiatives
The acquisition of Novelis Inc., the world's leading producer of aluminium rolled products, was completed on 15 May 2007 by purchase of all outstanding common shares of Novelis Inc. through an indirect subsidiary incorporated in Canada. With the Novelis acquisition, Hindalco is among the top 10 primary aluminium producers in the world.

Hindalco has reached an agreement with Alcan to acquire its 45 per cent equity stake in Utkal Alumina International Limited.

Operational review

Aluminium
Alumina and aluminium plants operated at consistently high capacity utilisation. The full advantage of phase I of Hirakud expansion helped in increasing metal production by 8.3 per cent. Production of value-added products (VAP) grew by 10.7 per cent. Rolled products and extrusions production increased by 9.6 per cent and 17.9 per cent respectively, reflecting the full utilisation of assets purchased in last two years.

Copper
Production volumes of copper cathodes and CC rods soared by 22.5 per cent and 24.9 per cent respectively on YoY basis on the back of the successful ramp up of the copper-III smelter. The copper smelter -II operations continue to be suspended due to higher cost of production.

Expansion projects

Muri
The expansion of the Muri Alumina refinery from 110,000 tpa to 450,000 tpa is slated for commissioning in the third quarter of the current fiscal.

Hirakud
Phase II of the expansion of smelting capacity from 100,000 tpa to 143,000 tpa is well on track. The power generation capacity from 267.5 mw to 367.5 mw will go on stream by December 2007.

Belgaum
The allotment of the lease for bauxite mines for expanding the alumina refinery capacity at Belgaum, Karnataka from 350 ktpa to 650 ktpa is awaited.

Utkal
Work on Utkal Alumina's 1.5 mtpa alumina refinery is underway. The company has acquired the land for the plant and facilities. The first phase of rehabilitation and resettlement of displaced persons has been completed and the second phase of the rehabilitation and resettlement process is on track. The commissioning of the plant is expected by March 2010.

Aditya Aluminium
Aditya Aluminium, the integrated aluminium project, encompassing 1 to 1.5 million tpa alumina refinery, 260,000 to 325,000 tpa aluminium smelter and 750 mw captive power plant is progressing as planned. The major portion of the total land required for the project has been acquired. Environmental clearances have been obtained for smelter, CPP and the refinery. The smelter is expected to be commissioned by March 2011 and the refinery by May 2011. The project has received final approval for SEZ status.

Mahan
The Mahan Aluminum project with a smelter capacity of 325 ktpa and CPP of 750 mw is on schedule. The land acquisition for the project is underway. The company has been allotted a coal block in joint venture with Essar group for the coal requirement of the CPP. Further applications have been submitted to the MoEF for environmental clearances. Project is expected to be commissioned by October 2011.

Latehar
This project with a smelter capacity of 325 ktpa and CPP of 750 mw has been allotted tubed coal mine jointly with Tata Power. Applications for environmental clearances have been submitted. CSR activities in relation to the project are being implemented. The expected date of commissioning is March 2012.

Industry outlook

Aluminium
Globally, aluminium demand is expected to grow at 7 per cent between 2007 to 2011. The robust growth in the Asian region, led by China, would continue to drive the demand for metals. China had a growth of 22 per cent in the aluminium consumption in CY 06 and is growing even faster this year. In fact, the growth has been a phenomenal 42 per cent in the first five months of the calendar year.

Alumina prices are staying at the level of ~ US$ 350/mt for some time now. Over short term, alumina prices will face downward pressure due to explosive growth in Chinese alumina production. (62.6 per cent y-o-y in CY 06 ). However, it is expected that alumina prices will not come down too sharply, from the present levels, as fall in alumina prices may make high cost refineries in China and other places non viable.

In India, the government's focus on infrastructure, as well as the growing importance of India as a global manufacturing hub for automobiles will propel aluminium growth in the country.

It is expected that domestic aluminium consumption will grow in the range of 8 to 9 per cent in FY08.

Copper
Global refined copper consumption driven by higher growth in Asia outstripped supply, supporting prices at historically high levels. Though supply disruptions at operations in Canada, Peru and Chile and low inventory levels are of concern, the market has over-reacted in the short term.

Increase in smelting capacity mainly in India and China and mines facing the problem of low grade, shortages of equipment and manpower have kept the concentrate market in deficit and have put further pressure on TcRc. During the first half of 2007, TcRc declined by almost 15 per cent. The concentrate would continue to be in short supply upto 2009; this may affect the TcRc, adversely, in the spot market. Custom smelters are likely to remain under pressure until new mines come on stream.

World demand growth forecast is 4.9 per cent for 2007 and 4.2 per cent in 2008. Per capita copper consumption in India is very low. However the CAGR of copper consumption is showing an improved trend. China, India and CIS would lead the expected growth of refined copper consumption during 2007-18. India's strong economic growth and key priority for the power sector, which is a major consumer of copper, will support high demand and price in the near term.

Company outlook
Higher volumes from the brownfield expansion and the continued focus on maximising free cash flow will be the major driver for the growth of the company in the coming quarters. Stronger Rupee along with low TcRc for copper concentrate are going to put pressure on the profit margins of the company. However, the benefits of brownfield expansions and various cost optimisation initiatives undertaken by both aluminium and copper businesses are expected to deliver impressive results, going forward.

For more information, contact:
Dr. Pragnya Ram,
Group Executive President,
Corporate Communications,
Aditya Birla Management Corporation Private Limited
Tel: 91-22-6652 5000 / 2499 5000
Fax: 91-22-6652 5741/ 42
Email: pragnya.ram@adityabirla.com