Hindalco net beats expectations on higher copper refining fees

Hindalco Industries Ltd, India’s second-largest aluminum maker, reported a better-than-expected profit for the third time in four quarters as an increase in copper treatment and refining fees offset falling metal prices.

Net income, excluding unit Novelis Inc, fell 2 per cent to 4.51 billion rupees ($91.4 million) in the third-quarter ended December 31 from a year earlier, the Mumbai-based company said in a statement. The median profit estimate of 25 analysts in a Bloomberg survey was 4.39bn rupees. Sales climbed 11 per cent to 66.5bn rupees.

Hindalco shares, which fell as much as 7.5 per cent before the earnings were announced, pared losses in Mumbai. The company increased the long-term contract fees by 20 per cent and more than doubled the spot-market charges of refining and treating copper during the quarter.

The cost of running its smelters surged after an 8 per cent gain in thermal coal prices in the quarter boosted electricity expenses. Power constitutes about 40 per cent of the total cost incurred in producing the metal.

The price of aluminum, used to make products ranging from beverage cans to aircraft, averaged 11 per cent lower in the period, while copper, which the company also produces, fell 13 per cent on the London Metal Exchange.

Raw material and fuel costs jumped 13 per cent to 47.8bn rupees during the quarter, the company said. Power- generating coal rose to an average $114.5 a metric tonne in the quarter from a year earlier, according to researcher McCloskey Group Ltd. The price of coal purchased in local auctions also surged after a supply shortage spiked demand from power producers.

Hindalco shares traded at 158.70 rupees, down 1.3 per cent, as of 2:44 pm in Mumbai. The shares have risen 35 per cent this year, compared with a 15 per cent increase in the benchmark Sensitive Index.

Atlanta-based Novelis yesterday reported a third-quarter loss of $12 million, citing lower shipments to Europe and weakness in the company’s electronics business in Asia. Sales fell 3.8 per cent to $2.5bn, it said in a statement.

The company also cut its forecast for adjusted earnings before interest, tax, depreciation and amortisation to between $1.05bn and $1.08bn for the year ending March 31, lower than November forecast of between $1.1bn and $1.15bn for the year.

“Our results this quarter were impacted by softer demand in Europe and Asia,” Steve Fisher, chief financial officer for Novelis, said in the statement. That reduced “our ability to absorb fixed costs and higher net interest expense as a result of our debt refinancing last year.”

Hindalco Managing Director Debu Bhattacharya in November predicted a difficult second half, saying aluminum demand has stagnated in India because of rising interest rates.

The Reserve Bank of India, the nation’s central bank, increased interest rates 13 times since the start of 2010 to curb inflation. In January, Subir Gokarn, the deputy governor of the bank, said that the monetary cycle has peaked.