Coal news and updates

Hindalco Q2 net profit declines 78%, hit by coal levy

Metals producer Hindalco Industries Ltd, the flagship firm of the Aditya Birla Group, on Thursday reported a 78% decline in stand-alone net profit for the quarter ended 30 September as it took a hit from one-time provisions.

Hindalco’s profit dropped to Rs.78.77 crore in the fiscal second quarter from Rs.357 crore a year ago.

The company set aside Rs.431 crore to cover exceptional items, including an additional levy imposed by the Supreme Court on coal extracted from a mine operated by it.

The apex court in September cancelled the allocation of more than 200 coal mines awarded by the government between 1993 and 2010 to companies to fuel captive power plants.

“I understand there are some review petitions (in the Supreme Court), but we have taken the hit on our books as this amount is also required to be paid in a time-bound manner,” said Praveen Maheshwari, chief financial officer.

But “operational performance has been fantastic. The important point is both aluminium and copper have performed very well”, Maheshwari said.

Stand-alone revenue was Rs.8,554 crore in the September quarter, up 35.67% from the same period a year ago, as aluminium premiums and prices and the treatment and refining charges (TC/RCs) for copper improved, the company said.

Hindalco reported a rise in earnings before interest, taxes, depreciation and amortization (Ebitda)—an indicator of operating profitability—to Rs.897 crore in the quarter, up 66% from a year ago. Finance costs rose more than two times from a year ago to Rs.386 crore in the September quarter.

Analysts had expected the metal producer to post a net profit of Rs.393.6 crore on net sales of Rs.8,307.9 crore, according to a Bloomberg poll.

“It’s a good show on operating performance basis and when adjusted for exceptional losses,” said Goutam Chakraborty, metal analyst at Emkay Global Financial Services Ltd.

Hindalco is India’s second largest aluminium producer and the largest copper producer. It is battling a fuel crunch as several of the mines allocated to it have been cancelled by the apex court in a case that challenged the way coal fields were allotted to firms.

The company is set to see higher expenses in the quarters ahead, mainly on the coal front.

In the case of its Talabira 1 coal block in Odisha, the cancellation will take effect from 31 March 2015, subject to the payment of an additional levy of Rs.295 per tonne of coal extracted from the beginning till 31 March 2015, the firm said.

Maheshwari indicated that the company could be bidding for multiple blocks when they are put up for auction by the government. That means it could face large funding requirements.

“We will participate in the auctions. I think in the next two-three months we can expect some quick action on the auctions,” said Maheshwari. “We are evaluating as to which mines could be of use to us.”

Maheshwari did not indicate what the valuations could be for the coal block auctions that are expected to be fiercely contested by many companies.

“If it is required, we are very confident we will have no problems as far as raising funds,” Maheshwari said.

Power, metal and cement companies are expecting the auction of 32 operational coal mines and 42 fields that are almost ready to mine, as indicated by the Supreme Court’s order.

The advantage from high base metals prices and premiums could also slip away in the quarters ahead, Emkay’s Chakraborty said.

“Aluminium demand certainly looks better but there are so many issues over prices,” Chakraborty said. “Rising dollar index and/or stricter London Metal Exchange rules, high inventories and any rise in US interest rate are to be watched for future indication of Hindalco’s earnings.”

Hindalco Industries shares gained 0.2% to close at Rs.151.95 on Thursday on BSE, while the benchmark Sensex lost 0.24% to 27,940.64 points.

Source: Live Mint