Hindalco Profit Rises to a Record on Aluminum Prices

Hindalco Profit Rises to a Record on Aluminum Prices

Hindalco Industries Ltd., acquiring Novelis Inc. for $3.4 billion, posted a record fourth-quarter profit because of an increase in prices of aluminum and said demand for the metal will stay strong this year.

Profit climbed to 7.21 billion rupees ($176 million) in the quarter ended March 31, from 6.26 billion rupees a year ago, the company said today. That exceeded the 6.27 billion rupees median forecast of five analysts surveyed by Bloomberg.

Higher prices may help Billionaire Chairman Kumar Mangalam Birla convince investors the merits of spending almost six times its 2007 profit to acquire Novelis to gain a fifth of the high- end aluminum market. The takeover has wiped out $770 million of Hindalco's market value on concern it may take on too much debt, mirroring declines in shares of Tata Steel Ltd. after its record $12.9 billion purchase of U.K.'s Corus Group Plc.

``The Novelis sword is still hanging above their heads but like Tata Steel this stock too will appreciate once the company details fundraising plans,'' said U.P. Bhat, a fund manager at Canbank Mutual Fund in Mumbai. ``We're bullish on the stock.''

Shares of Hindalco are the second-worst performers on the benchmark Sensitive index in the past three months. They gained 1.5 percent to 148.15 rupees today. Tata fell 15 percent during the four-month bidding war for Corus. The stock is the best- performer on the index in the past month.

Hindalco on Feb. 11 agreed to pay Novelis shareholders $3.5 billion and assume $2.4 billion of debt. The company will borrow $3.1 billion from ABN Amro Holding NV, UBS and Bank of America. The loan will boost its debt-equity ratio to 1.4 from 0.1, Brics Securities Ltd., a Mumbai-based brokerage, said on Feb. 13.

China Demand

Hindalco gained from aluminum prices that were 12 percent higher on average in the period from a year earlier. Prices may rise 11 percent this year, UBS analysts led by Daniel Brebner in London, said April 30.

Prices of the metal traded on the London Metal Exchange has advanced for four straight years, the first time it's done that since at least 1988, on increasing demand in China, the world's biggest user of the lightweight metal, and India.

``China's aluminum consumption is anticipated to grow by a phenomenal 20.8 percent this year, driven mainly by investments in infrastructure and growth in automobile industries'' Hindalco said today in a statement. Aluminum accounted for 85 percent of Hindalco's operating profit in the quarter.

`Very Competitive'

While revenue from copper-refining rose 40 percent to 27.1 billion rupees, margin narrowed to 5 percent in the period from 6.2 percent a year ago as the company earned less for processing copper concentrate into the metal.

Hindalco and its Asian rivals are earnings less for turning ore into copper as mine production lags behind smelting capacity. The company can process 500,000 tons of copper a year and the business accounted for 15 percent of its operating profit.

``Its very competitive and difficult for smelters to secure supplies'' of copper ore, said Adam Rowley, analyst at Macquarie Bank Ltd. in London. Treatment charges have slumped to $40 a ton and 4 cents a pound from a peak of $180 and 18 cents, he said before the earnings were announced.

Fourth-quarter profit was helped by a 66 percent jump in income from operations other than its metals business to 1.23 billion rupees. The so-called other income came from dividends and investments, the company said.