Hindalco net profit falls 78% on coalgate fine provisioning

MUMBAI: Hindalco Industries reported a second quarter net profit of Rs 78.8 crore, down 78% from Rs 357.1 crore in the corresponding quarter last year, as the aluminium maker set aside funds for a pending fine on coal mining as directed by the Supreme Court and for a poorly performing unit in Australia. Sales at the Aditya Birla group’s flagship grew 36% to Rs 8,472.9 crore. Analysts, on an average, were expecting a profit of Rs 423.4 crore on sales of Rs 8,307.9 crore, according to a Bloomberg poll.

Earnings before interest, tax, depreciation and amortization grew 37% toRs 1,120 crore. Exceptional expenses included provisioning for fine of Rs 563 crore for using coal from operational, but now de-allocated, Talabira 1 mine in Odisha and a charge of Rs 258 crore on its underperforming investment in Aditya Birla Mineral in Australia. However, the exceptional expenses were offset to some extent by a foreign exchange gain of Rs 361 crore and a write back of provision of Rs 29 crore in state taxes.

Hindalco is waiting for key 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.

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 Rs 1,293.9 crore during the quarter. But despite coal scarcity, Hindalco has continued to ramp up its new smelters. “Important point is that projects are ramping up well, we are at a stage, where we are seeing the end of the tunnel. The coal uncertainty will go away in the next few months so if it all goes as we see it we have better days to come,” CFO Praveen Maheshwari told ET.

Hindalco 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 Rs 269 crore.

He said Hindalco has started evaluating suitable mines for bidding, considering the distance between the mine and plant. He added Hindalco could look at bidding for coal blocks in partnership with other firms. Maheshwari is not too worried about coal scarcity hurting Hindalco in the future, considering 170 new coal blocks are coming up for bidding. “I presume that coal production and availability should go up significantly.

The shortage that we see today in the medium term should go away,” he added. He also clarified that Hindalco would do a Qualified institutional placement (QIP) at an ‘opportune time’ if at all.