Hindalco Q4 profit drops 43pc, scales down capex plans

Hindalco Industries, which posted a 43.2 per cent decline in consolidated profit to Rs 668 crore for the last quarter of 2019-20 due to lower income on Friday, said it will cut down capital expenditure and maintain debt level till the coronavirus crisis is over. The company had posted a consolidated profit of Rs 1,178 crore in the year-ago period.

Consolidated income during the January-March quarter dropped to Rs 29,624 crore, from Rs 34,255 crore in the corresponding quarter of 2018-19, the Aditya Birla Group company said in a statement. "Our strategy now is to navigate the crisis but not to compromise on our long term strategic goals. So we are very aggressively reducing our cost... We have reduced the capital expenditure of Hindalco to Rs 1,500 crore," Hindalco Industries Managing Director Satish Pai told reporters here.

"Last year we had spent about Rs 2,300 crore. For Novelis, the capex is USD 450-475 million, which is a reduction of 30-40 per cent," he said. The company will put on hold the expansion of some of the downstream projects until the crisis ends.

Further, Pai said Hindalco has nearly Rs 10,000 crore of cash and Novelis has USD 2.4 billion in cash. "So, the debt reduction, we'll have to wait till the crisis finishes, because right now we are trying to keep as much cash as possible, which is what I guess any business will do during a crisis. Our debt levels have not changed from last quarter.

"The net debt at the end of March was Rs 15,595 crore," he added. The increase in finance cost is mainly due to US-based arm Novelis raising USD 1.6 billion at 4.75 per cent to pre-close bonds worth USD 1.5 billion carrying interest of 6.25 per cent.

"When a bond is closed early there are certain costs and in this case it was about USD 70 million (Rs 568 crore). The entire process will lead to a saving of USD 15 million a year," Pai added. The company has also paused the Rs 2,500 crore downstream project in Hirakud in Western Odisha.

"This year we have slowed it down… All these downstream projects are quite modular, so it allows us to do bit by bit… We were to do the project over a period of 3-5 years. We'll probably do it at the later half of this year, once we get more confidence on how the economy doing,” he added. The consolidated profit for the year ending March 31, 2020, declined by 31.44 per cent to Rs 3,767 crore compared to Rs 5,495 crore in 2018-19.

Total income also dipped by 9.37 per cent to Rs 1,19,330 crore against Rs 1,31,669 crore in the previous fiscal. Meanwhile, talking about the performance of the company Pai said: "Volatile environments will continue to test the industry but we believe our strategic focus on future-proofing operations will continue to raise our performance above the sector." The company said that despite rising uncertainty on account of COVID-19, Novelis recorded its best-ever EBITDA, while the Indian aluminium business delivered EBITDA margins for the quarter and full-year, that outperformed the industry.

The company said that as part of continuous process manufacturing, Hindalco's four aluminium smelters and the Utkal alumina refinery in the country operated at near full capacity during the lockdown. The company's coal and bauxite mines also operated at regular scale. More than 80 per cent of the total output is being exported to minimise inventory build-up and to absorb plant fixed costs.

Aluminium downstream plants had shut down initially, except for two that continued to operate and serve essential sector customers. Downstream operations have resumed at reduced capacity to meet existing market demand. After initial temporary shutdowns, "Hindalco's Copper smelters...have restarted operations and are now stabilising to reach optimal levels," it said.

In the US, Novelis has experienced increased disruption to its global aluminium production and supply chain, including the shutdown of some of its plants due to government decrees and some customers temporarily shutting down their own manufacturing facilities. In spite of the operational challenges, Hindalco continued to serve its customers in essential industries, by reorienting supply chains to offer uninterrupted supplies from its warehouses and its operating plants.

During the lockdown, Hindalco produced aluminium foil for pharmaceutical packaging of Chloroquine Phosphate and Hydroxychloroquine sulphate tablets and other critical drugs. Hindalco aluminium was used in manufacturing components of life-saving ventilators, components of X-ray and CT scan machines, COVID testing booths and other hospital equipment, Personal Protection Equipment (PPE) kits and sanitiser stands.

Hindalco-Novelis prioritised the health and safety of the workforce by providing work-from-home option to majority of employees in offices, running plant operations with reduced staff, the company noted. The company continues to take all possible precautions to keep infections at bay.

The company is managing 51 quarantine centres, and has converted its hospital at Utkal Alumina in Odisha into a Level-1 COVID hospital. The company's Renukoot plant hospital in Uttar Pradesh has been notified for preparedness as a Level-2 COVID hospital.

Shares of the company on Friday closed at Rs 146.10 per share, up 1.14 per cent on BSE..