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Tuesday, Apr 27, 2004

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Hindalco: Divergent trends in two divisions

Krishnan Thiagarajan

ROBUST revenue and post-tax earnings growth dictated the financial performance of Hindalco Industries for the fourth quarter ended March 31, 2004. The performance of the two key segments of Hindalco - the aluminium and copper business, however, displayed divergent trends. While the operating margins of the aluminium business improved on the back of strong volumes and value-added products, the margins of copper slipped further on account of a host of factors.

  • Aluminium division: The benefits of brownfield expansion made earlier in the year continued to flow for the third successive quarter. The division recorded a primary metal production of 83,282 tonnes in the latest quarter, up from 82,142 tonnes and 79,179 tonnes in the two preceding quarters. Similarly, the production of secondary aluminium products such as rolled products and wire rods was also on an uptrend in the latest quarter. The combination of these two elements helped this division notch a healthy profit before interest and tax (PBIT) margin of 30.2 per cent, marginally higher than 30 per cent in the immediately preceding quarter. As international prices are likely to remain firm, this division will continue to enjoy good profitability in the near term.

  • Copper division: The combination of lower TC/RC (Treatment Charges/Refining Charges), appreciation in the value of the rupee and import tariff reduction contributed to a significant pressure on the PBIT margin of this division. This was to a large extent the extension of a trend in the past couple of quarters. The PBIT margin at 5.9 per cent in the latest quarter was lower than 8.4 per cent in the third quarter of 2003-04. The lower TC/RC was on account of unprecedented increase in copper concentrate purchases by China, which led to spot TC/RCs plunging to historic lows.

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