India's Hindalco Industries posted a lower-than-expected 9.6 percent drop in quarterly profits, sending its shares up nearly 2 percent, as better volumes and higher other income helped limit the impact of volatile input costs.
The non-ferrous metals producer, part of the diversified Aditya Birla Group, said rising energy costs and volatility in metal prices pose a significant challenge but it hopes to contain cost pressures through operating efficiencies.
"Our near-term outlook remains cautious," said Hindalco's Managing Director Debu Bhattacharya.
"Aluminium prices are likely to remain subdued, while India-specific cost pressures continue. Our interest costs will also go up significantly as project expansions kick in," he said.
Hindalco reported quarterly net profit of 6.4 billion rupees ($120 million) for its Indian operations, compared with net profit of 7.08 billion rupees a year earlier.
Analysts on average had expected profit of 4.79 billion rupees for the company's fiscal fourth quarter, Thomson Reuters I/B/E/S showed.
Net sales rose 15 percent to 75.63 billion rupees.
Shares in Hindalco, valued by the market at $4.1 billion, closed up nearly 2 percent after the earnings announcement, in a Mumbai market that fell more than 2 percent.
The stock has traded little changed so far in 2012, compared with a nearly 7 percent rise in the main index.
"We expect margins to remain under pressure as we don't see costs coming down in the near future. There is also a lack of clarity on their expansion projects," said Bhavesh Chauhan, analyst at Mumbai's Angel Broking.
The aluminium business, which accounts for a third of revenues but boasts higher margins, reported a 14 percent decline in profits from a year ago, mainly due to a jump in input costs and lower prices, the company said.
The lower margin copper segment, which accounts for two-thirds of the total revenue, saw profits jump on better volumes and higher processing gains.
Non-ferrous metal prices have remained under pressure globally over the past few months on demand uncertainties because of the festering euro zone debt crisis and softening Chinese demand.
Copper futures on the London Metal exchange were trading around $8,127 per tonne, having risen roughly 8 percent so far in 2012. Aluminium futures, at $2,063 a tonne, are up barely 3 percent this year.
The company, which is trebling aluminium production capacity in India to 1.9 million tonnes by 2013 at a cost of about $5 billion, said all project expansions were on track.
Hindalco's U.S.-based subsidiary, Novelis, which is the world's largest producer of rolled aluminium products, has earlier projected earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.05 billion to $1.08 billion for the fiscal year ended March 31, 2012.
Novelis will report its full year earnings on May 22.
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