India Hindalco Q2 beats fcast, says prices to weaken

MUMBAI, (Reuters) - Hindalco Industries Ltd, India's top aluminium maker, on Friday posted a record quarterly profit, beating forecasts, but cautioned that slowing demand and a global financial crisis will hurt prices in the near term. A U.S. recession and waning demand in Europe and China would push prices down further in aluminium and copper, key segments for Hindalco, but Managing Director Debu Bhattacharya ruled out any production cuts. "Current situation is unsustainable. Prices are expected to remain subdued, but fall in aluminium prices will be lower than in other base metals," he told reporters at a news conference. "There are no plans to cut production. It is profitable even at these rates." Copper prices on the London Metal Exchange this week dipped to $3,590 a tonne, their weakest in three years. At $2,070, aluminium prices have lost nearly 14 percent so far this year. Hindalco said higher sales and a foreign exchange gain of 1.64 billion rupees helped its best-ever quarterly profit. The company, which bought Canada's Novelis in 2007, said standalone net profit was 7.2 billion rupees ($146 million) in its fiscal second quarter ended Sept. 30, compared with 6.43 billion rupees a year earlier. Net sales rose to 56.4 billion rupees from 49.6 billion. A Reuters poll of nine analysts had expected a net profit of 7.01 billion rupees on net sales of 52.34 billion. Margins in the aluminium business, which contributes 39 percent of Hindalco's revenue, rose to 37 percent from 34 percent a year ago. The copper business, which contributes the majority of revenues, reported flat margins at 4 percent. Hindalco's low-cost smelters meant it was better placed than rivals to weather a downturn in demand and prices, Bhattacharya said. "We had anticipated this situation and are speeding up expansion and sweating our assets more," he said. Hindalco is spending 198 billion rupees over three years to expand capacity in India. Of this, 60 billion rupees is being invested in the fiscal year ending March 2009. Shares in Hindalco, worth $2.4 billion, closed at 60.20 rupees, up 13.3 percent in a Mumbai market that closed 8.2 percent higher. They dropped 24 percent in the July-September quarter, compared to the 4.5 percent decline in the main Mumbai index, and are down 69 percent in 2008. A rights issue by Hindalco to raise $1 billion earlier this month was hit by sharp falls in equity markets, with the founders and underwriters having to cover more than 40 percent of the issue. The funds were to be put towards partly repaying a $3.2 billion bridge loan taken out for the Novelis deal.