2Q profit outperforms expectations on higher aluminum production

The standalone performance of Hindalco Industries, controlled by Indian billionaire Kumar of the metal, for the September quarter was impacted by a fall in the price of aluminium, a business which accounted for over 40% of revenues and nearly half of profits last fiscal.

Profit rose to INR 1.03 billion ($15.5 million) for the quarter to September 30, from INR 788 million a year earlier, the Mumbai-based company said in a statement Tuesday. Analysts had expected a loss of INR 1 billion.

Revenue increased 4% to INR 89.25 billion, despite a sharp drop in prices and realizations, as the company ramped up production at its new factories.

Producers such as Hindalco and billionaire Anil Agarwal's Vedanta are grappling with an influx of cheap imports from China and the Middle East amid falling prices caused by a global oversupply. The companies have been urging the government to raise the import duty on the metal to check surging shipments from China and the Middle East, as several mills face closure amid falling prices and raw material shortages. India has imposed a so-called safeguard duty on steel to protect the industry from surging imports.

Aluminium prices declined by about $700 per ton, or 20%, on the London Metal Exchange in the September quarter.

The pressure on metal producers will likely continue amid the global oversupply and a slowdown in China's economy, analysts say.

The company's U.S.-based unit Novelis, the world's largest recycler of aluminum, on Monday posted a loss of $13 million for the second quarter, compared with a profit of $38 million in the year ago quarter. Sharply lower aluminum prices and local market premiums resulted in a 12% decrease in revenue to $2.5 billion, Novelis said in a statement.

Apart from surging imports, aluminum companies in India are grappling with shortages of bauxite, a key material in making the metal, and coal. This has forced aluminum producers to buy raw material from overseas, pushing up costs.

The stock has shed nearly half of its value since the start of the year, lagging the benchmark S&P Sensex index. Hindalco shares rose nearly 4% following the results, but later erased gains to end slightly lower at INR 79.45 in Mumbai Tuesday.

Hindalco, the flagship of the $40 billion Aditya Birla Group, has been seeking to improve its operational performance by ramping up its new facilities, as higher volumes help offset weaker pricing. During the quarter, alumina production rose 18% to 628 kilo tons, while aluminum metal output surged 44% to 269 kilo tons. The company smelter in the central Indian state of Madhya Pradesh was ramped up fully in the quarter, while it is also seeking to boost production in its smelter in the eastern Indian state of Odisha.

"With macro-economic headwinds continuing, the company's focus will be on operational excellence and cash conservation in the coming quarters," Hindalco said in the statement.