Hindalco Q2 profit down 78% on fines, provision

Hindalco BSE 0.20 % Industries reported a second quarter net profit of INR 78.77 crore, down 78% from INR 357.11 crore in the corresponding quarter last year, as the aluminium maker paid a huge fine as directed by the Supreme Court in September and took a one-time charge on a poorly performing unit in Australia.

Sales at the Kumar Mangalam Birla-controlled company grew 36% to INR 8472.90 crore. Analysts, on an average, were expecting a profit of INR 423.39 crore on sales of INR 8307.90 crore, according to a poll conducted by Bloomberg.

Exceptional expenses included a fine of INR 563 crore for using coal from operational but now de-allocated Talabira 1 mine in Odisha and a charge of INR 258 crore on its under performing investment in Aditya Birla Mineral Ltd in Australia. However, the expenses were offset to some extent by a foreign exchange gain of INR 361 crore and return of INR 29 crore in state taxes.

Hindalco is facing uncertainty regarding coal linkages after it lost all its captive coal mines, both functional and allotted, to Supreme Court judgement in September. Aluminium producers in India need low-cost coal to produce energy intensive aluminium and remain profitable.

It can keep using coal from Talabira 1 mine only till this fiscal end, after which it will have to rebid for all the mines again. Hindalco's exposure to other coal blocks, which were not yet functional, stands at INR 269 crore.

The other major concern for Hindalco is coal linkage to its aluminium plant in Madhya Pradesh, which was already delayed due to local discontent. If coal block auctions are delayed, Hindalco will have to step up coal imports and domestic e-auction purchases to feed the power-hungry aluminium plants.

Its profitability has already been eroded to a great extent because of buying coal at market prices. Power and Fuel costs shot up 47% to 1293.89 crore during the quarter.