With a scam overhang, how is Hindalco performing?

In the ongoing coal auction, Hindalco has aggressively bid for mines and has already bagged 4 in Jharkhand and Chhattisgarh

Aditya Birla group’s metals major, Hindalco is one of the accused in the coal scam along with its managing director Debu Bhattacharya and group chairman Kumar Mangalam Birla and have been summoned to the court on April 8.

While the coal scam overhang has negatively impacted the company, operationally the  company improved its top line in the recent quarters  due to higher volume and better realisation in both aluminum and copper businesses.

Analysts say the stock fell 3.5 per cent as investors feared that the company’s top management will now be more involved with fighting the charges rather than focusing on the operations. Ever since the CBI first registered the FIR in October 2013, the management led by Debu Bhattacharya are fighting the charges. The seizure of cash from Aditya Birla group's Delhi offices by the Income-Tax department further impacted investors sentiments.

Operationally for the December quarter, Hindalco’s net sales stood at Rs 8,471 crore (Rs 84.71 billion) as compared to Rs 7,200 crore (Rs 72 billion) in the corresponding quarter of fiscal 2014.

Profit before Interest, Depreciation and Tax (PBITDA) was Rs 1,135 crore (Rs 11.35 billion) versus Rs 833 crore (Rs 8.33 billion) in the corresponding quarter of the previous year. However, finance cost and depreciation were significantly higher compared to Q3FY14 due to progressive capitalisation of the company’s greenfield projects. As a result, net profit was only 7.6 per cent higher at Rs 359 crore (Rs 3.59 billion) as compared to Rs 333 crore (Rs 3.33 billion) in Q3FY14.

The company’s operations were hit after the  Supreme court of India, in its judgment dated August 25, 2014, and later in an order dated September 24, 2014 declared all allocation of the coal blocks made through screening committee route since 1993 as illegal and  quashed the allocation of coal blocks which include - Mahan, Tubed and Talabira II & III coal blocks allocated to the company jointly with coal mines limited and MNH shakti Limited in which the company holds equity of 50 per cent, 60 per cent and 15 per cent, respectively. Mahan coal mine was allotted to Hindalco and the Essar group.

As per HDFC Securities, the company’s exposure in these joint ventures as on 30th September 2014, including application money and corporate guarantees given stands at Rs 211 crore, Rs 44 crore and Rs 37 crore respectively.

After the Supreme court order, the Government of India has promulgated the coal mines (special provisions) ordinance, 2014 on 21st October 2014 which provides for payment of compensation to prior allottees towards investment made in “land and mine infrastructure”.

In an interview to Business Standard, Hindalco management said the company is meeting all its coal requirements by importing coal and buying coal from Coal India Ltd. But the mines were extremely important for the company to keep its costs low.

In the ongoing coal auction, Hindalco has aggressively bid for mines and has already bagged four in Jharkhand and Chhattisgarh.