Hindalco To Pare Debt Even As Operating Profit Improves

14 November 2016

Megha Mandavia
The Economic Times

Mumbai: Hindalco Industries will continue to pare debt as its operating profit improves in the coming quarters, helped by strong aluminium prices and low input cost, its top executive told ET.

The aluminium major’s debt to EBITDA (earnings before interest, tax, depreciation and amortisation) ratio fell to 4:5 from 6:2 at the end of last financial year. “As EBITDA picks up and we generate cash, we will look for opportunities to phase out debt. There won’t be any pre-payment penalty,” chief executive officer Satish Pai said.

Hindalco reported a net profit of Rs 439.74 crore for the September quarter compared to Rs 123.72 crore in the corresponding quarter last year, helped by lower input cost and higher volumes. The aluminium and copper major, owned by Kumar Mangalam Birla, posted EBITDA of Rs 1,493 crore, up 39% from the year-ago quarter.

The company did an early repayment of a long term loan of about Rs 689 crore and scheduled repayment of Rs 200 crore during the quarter. The standalone net debt now stands at Rs 20,000 crore, excluding the Utkal refinery. Its net sales of Rs 9,457.59 crore is slightly down from the Rs 9,477.48 crore in the corresponding quarter of last fiscal due to weak copper realisations and aluminium premiums.

Aluminium production jumped 19% to 321 kilo tonnes as the Mahan smelter in Madhya Pradesh and Aditya smelter in Odisha are now fully operational. Aluminium prices on the London Metal Exchange were up only 2% during the quarter.

Hindalco said its operational performance was supported by benign energy prices and some recovery in the aluminium prices. However, it added that price recovery is vulnerable to imminent Chinese capacity additions and smelter restarts.

“There are a lot of tailwinds in the coming quarters. Prices on the London Metal Exchange is strong and coal availability is good in India. So I think the next two quarters should be good,” said Pai, who joined the company from Schlumberger. Hindalco Industries is finally seeing the tide turn after a heavy capital expenditure to more than double its capacity amid a global commodity downturn.

Hindalco’s subsidiary Novelis refinanced Rs 16,753 crore of debt in two tranches in August and September, helping it save Rs 362 crore in interest every year. Black-Rock, Fidelity, AllianceBernstein were some of the investors. Hindalco also prepaid Rs 1,300 crore of its standalone loan of Rs 28,766.33 crore while extending the repayment timeline to 2032.

Market analysts believe that stable aluminium prices after the recent rally augurs well for Hindalco, given its improving profitability. This, coupled with a full ramp-up of its operations, significantly improves its cash flow.

The company has secured most of its coal supply it had lost to the coal block de-allocation. Its massive expansion is complete and production is fully ramped up.